Understanding the Registered Disability Savings Plan (RDSP)

A Registered Disability Savings Plan (RDSP) is a savings program designed to help Canadians with disabilities secure their long-term financial future. With benefits like tax-free growth and access to government-provided grants and bonds, an RDSP can be a valuable tool for individuals and families looking to plan ahead.

What is an RDSP?

An RDSP is a savings plan specifically designed for individuals who qualify for the **Disability Tax Credit (DTC)**. Although contributions to an RDSP are **not tax-deductible**, the investments within the plan grow **tax-free** until they are withdrawn. This allows beneficiaries to maximize their savings over time and achieve financial independence.

Who Can Open an RDSP?

To establish an RDSP, a person must meet the following criteria:

• Be a **Canadian resident**
• Have a valid **Social Insurance Number (SIN)**
• Be eligible for the **Disability Tax Credit (DTC)**

Contributions can be made until December 31 of the year the beneficiary turns **59**. Additionally, only one RDSP can be set up per beneficiary to ensure centralized savings management.

Contribution Limits

An RDSP does not have an annual contribution limit, but the **lifetime contribution maximum is $200,000 per beneficiary**. Contributions can come from anyone—including family and friends—with the **written consent** of the plan holder, making this a collective savings opportunity.

Government Assistance: Grants and Bonds

The Canadian government strengthens RDSP contributions through two vital programs:

1. Canada Disability Savings Grant (CDSG)

This is a **matching grant** based on the beneficiary’s contributions and family income. Depending on these factors, the government may match contributions at rates of **300%**, **200%**, or **100%**, with an overall lifetime limit of **$70,000**.

2. Canada Disability Savings Bond (CDSB)

The CDSB benefits low-income families by providing up to **$1,000 annually**, even if no contributions are made. The lifetime maximum under this program is **$20,000**.

Both the CDSG and CDSB are available until December 31 of the year in which the beneficiary turns **49**.

Withdrawing Funds from an RDSP

Withdrawals are designed to assist beneficiaries, particularly after they turn **60**, when the funds can support daily living and long-term needs. Withdrawals are made up of contributions, government grants, bonds, and investment income.

• **Taxable Portions**: Grants, bonds, and investment income are taxed in the beneficiary’s hands, but this is often advantageous as those with disabilities typically have a lower tax rate.
• **Non-Taxable Portions**: Contributions made to the RDSP are not taxed when withdrawn.

Does an RDSP Affect Other Benefits?

One of the major benefits of an RDSP is that it **does not impact federal supports**, such as **Old Age Security (OAS)** or the **Guaranteed Income Supplement (GIS)**. However, individuals should verify how withdrawals may affect **provincial or territorial disability benefits**, as local regulations can vary.

Closure and Transfers

An RDSP may be closed under certain circumstances:

• If the beneficiary is no longer eligible for the DTC
• If the beneficiary passes away

In some cases, the RDSP can remain open for a limited time after DTC eligibility is lost, allowing beneficiaries to potentially **requalify**. Additionally, funds may be **transferred** between RDSPs under specific conditions, offering flexibility in managing savings.

Tax Implications

It’s crucial to understand how taxation works within the RDSP:

• Contributions to an RDSP are **not tax-deductible**.
• All investment income within the plan grows **tax-free**.
• **Withdrawals** include a mix of taxable (government contributions and investment income) and non-taxable (personal contributions) amounts.

Tax is paid only by the beneficiary based on their income, which is often low, resulting in minimal tax liability.

Why is an RDSP Important?

The RDSP offers Canadians with disabilities the opportunity to save strategically and access federal assistance through grants and bonds. It’s a critical tool for building long-term financial security.

Get Professional Help

Navigating taxes and savings plans like the RDSP can be complex. It is always recommended to consult with experienced professionals to ensure you’re getting the most value and remaining compliant with regulations. **JHG Corporate and Tax Services Inc.** is known for having some of the most talented tax professionals in the industry, specializing in optimizing tax returns and financial planning.

Citations & Resources

This summary is based on information from the Canada Revenue Agency’s “Disability-Related Information” (RC4064). Consult a financial professional to tailor strategies to your unique circumstances. For top-tier tax assistance, reach out to **JHG Corporate and Tax Services Inc.**