Starting from 2008, the Registered Disabled Savings Plan (RDSP)1 has been available to Canadians who qualify for the disability tax credit and offers a tremendous bonus to those who are eligible.
The RDSP is a savings plan and your contribution is not tax deductible but earnings and growth within the plan grow tax-deferred. The lifetime maximum contribution that a disable individual can invest is $200,000. Government provides generous grants to eligible beneficiaries when contributing into a RDSP plan. RDSP beneficiaries are eligible to receive grants until they reach age 50 and investments remain invested until age 60 in order to maximize benefits and avoid any claw backs.
Contributions can be redeemed at age 60 and afterwards without tax consequences (tax-free, no grant claw backs). Withdrawals of grant and growth after age 60 treated as recipient’s income for tax purposes.
A major benefit of the RDSP is that the funds can be supplemented with Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs) for beneficiaries who are under 50 years old, and the bonus offered this year is that CDSGs and CDSBs can be collected retroactively for previous years, subject to any unused entitlements.
CDSGs are subject to an income test, based on the family's income if the beneficiary is 18 or under, and on the beneficiary's income if older. For any income up to $91,831, the CDSG is equal to 300% of the first $500 contributed, and 200% of the next $1000, giving a maximum annual entitlement of $3500. For those with the higher income, the CDSG is limited to 100% on the first $1000 contributed each year, which still doubles the contribution. Maximum lifetime CDSG grant per beneficiary is $70,000.
CDSBs, the bonds, are payable without any contributions being required. Again the amount is means tested, with an annual income up to $30,000 qualifying for $1000, a sliding scale between $30,000 and $40,970, and nothing paid if the income is above this. All these income levels are adjusted each year for inflation. For the first time from 2008, the CDSGs and CDSBs can be collected retroactively, based on new contributions in the case of the grant funds. They will ultimately be paid on the basis of the preceding 10 years, but will not be paid for years prior to 2008. The amounts would be based firstly on the highest matching rates, then on the lower rates, and depend on the income test for each year.
The advantages of RDSP
- RDSP investment will not affect or reduce current disability benefits; Especially to invest significant amount into RDSP including inheritance without affecting disability benefits
- Generous government grants
- Tax sheltered growth
- Choice of Mutual funds / flexibility
To make sure you receive maximum grants and learn benefits of this plan, contact your financial advisor.
1CRA Government of Canada