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 Registered Disability Savings Plans - Financial Needs for People with Disabilities A severe mental or physical disability can seriously limit financial opportunities for lifestyle, accommodation, retirement or other goals. Without limited or no means to generate earned income or to save money, many people with disabilities have little access to tax-preferred savings opportunities such as RRSPs, TFSAs, employment pension plans or the Canada Pension Plan. To help address their need to save for the future, the federal government introduced Registered Disability Savings Plans (RDSPs) in 2008. Registered Disability Savings Plans RDSPs are long-term, tax-preferred savings plans to help Canadians with disabilities and their families. The person with the disability is assigned as beneficiary of the plan, and his or her parents or guardians are usually the contributors. There is no annual contribution limit to the RDSP, but there is a lifetime contribution limit of $200,000. Contributions are not tax-deductible, but assets in the plan grow on a tax-deferred basis. Generally, any RRSP or TFSA-eligible investment can be used in an RDSP. Who is Eligible? To be named on an RDSP, the beneficiary must be a Canadian resident under 60, have a social insurance number, and be eligible for a Disability Tax Credit (DTC). The DTC is granted upon application to the Canada Revenue Agency for people with a severe and prolonged disability. In most cases, an application for a DTC must include a declaration by a medical doctor as to the severity, longevity and impact of the disability. Grants and Bonds Each year until the beneficiary turns 49, he or she may receive up to $3,500 paid into the plan from the Canada Disability Savings Grant. The grant amount is based on that year’s contributions and the beneficiary’s family income. There is a lifetime grant maximum of $70,000 per beneficiary. For low-income and modest-income families, the beneficiary may be entitled to $1,000 per year from the Canada Disability Savings Bond, regardless of plan contributions. The bond’s lifetime limit is $20,000 per beneficiary and unused grant and bond entitlements can be carried forward for 10 years. Withdrawals Withdrawals of contributions from an RDSP are not taxable, but any grants or bonds paid into the plan within 10 years of the withdrawal must be repaid. Disability Assistance Payments are withdrawals that are paid to the beneficiary, the taxable portion of which is taxed in the beneficiary’s name. Starting at age 60, the beneficiary must withdraw minimum amounts each year called Lifetime Disability Assistance Payments. Because grants and bonds are paid into the plan only up to age 49, such withdrawals normally do not require any repayment of these benefits. Other Provisions Proceeds from the RRSP, RRIF or pension assets of a deceased parent or grandparent may be rolled over to the RDSP of a financially dependent beneficiary. RDSPs have no impact on federal benefits such as the Canada Child Tax Benefit, the GST/HST Credit, Old Age Security and Employment Insurance, nor do they hinder eligibility for provincial benefits such as the Ontario Disability Support Program. Overall Benefits RDSPs represent a unique opportunity to accumulate government-subsidized, tax-deferred savings for people who need it the most, without infringing on other benefits and entitlements. The flexibility of investment choices in RDSPs allows funds to be invested for long-term growth and future income. However, contributors must take care to ensure that an appropriate investment portfolio is used and that the plan is monitored and adjusted, as needed, according to the beneficiary’s evolving situation. More Information
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