RDSP?

And how does it work?

A Registered Disability Savings Plan is a government-registered savings plan designed to help people with a disability (and their families) save for their future. However, it’s possibly the least well-known of all registered savings plans Less than a third of the people eligible to open an RDSP in Canada have one, and almost half of those who don’t have one haven’t even heard of it.

With almost 1.5 million Canadians eligible to open an RDSP, that’s around a million people missing out on an extremely beneficial savings plan that can help their money grow much faster and provide even greater financial security. Investments within the RDSP grow in a tax-deferred way, meaning that no tax is charged on earnings within the account (from interest, dividends or capital gains) while the money stays within it. RDSP savings can be boosted even further by government contributions from the Disability Savings Grant and the Canada Disability Savings Bond. This article aims to shed light on this little-known savings plan by explaining how it works, who can qualify for an RDSP in Canada, the rules for contributing to and withdrawing from an RDSP, the kind of investments that can be held in it, and whether an RDSP is a good choice for you or your loved one.

How does an RDSP work?

The Registered Disability Savings Plan works similarly to a RESP or a TFSA: the account must be registered with the federal government (through your financial institution) and all earnings within the account grow tax free!

While anyone can contribute to an RDSP in Canada, the person benefitting from the account (the beneficiary) must have been approved for and received the disability tax credit. The disability tax credit is a non-refundable tax credit, which is available to people with “a severe and prolonged impairment” (or the family member who supports them) in one of several categories, as classified by the Government of Canada (see below). The disability tax credit can considerably reduce the amount of tax that the person with the disability or their supporting family member pays.

Once you or your dependent family member qualify for the disability tax credit, you can open an RDSP The key advantages of opening an RDSP are the taxdeferred growth of savings and investments held in the plan (this can help your money grow much faster, thanks to increased compound returns) and government contributions in the form of the Canada Disability Savings Grant and the Canada Disability Savings Bond.

How the Canada Disability Savings Grant and Bond work

The federal government pays a matching amount of 100%, 200% or 300% into an RDSP through the Canada Disability Savings Grant. The amount paid will depend on how much is contributed in a given year and the beneficiary’s family income.

The RDSP grant pays a maximum of $3,500 in any one year and has a lifetime contribution of $70,000 This can be very helpful in securing the financial future of anyone with a disability.

The matching percentage of the Canadian Disability Savings Grant will depend on the beneficiary’s adjusted family net income.

Continued on page 27