Registered Disability Savings Plan

Caring for someone with a severe or prolonged disability can be emotionally and financially challenging. My intent today is to raise awareness of the Registered Disability Savings Plan (RDSP) to hopefully help provide long-term financial security for people with disabilities.

The federal government introduced RDSPs in the 2007 Federal Budget, to help parents and other individuals save for the long-term financial security of a person with a disability. Although largely underutilized, RDSPs allow funds to be invested on a tax-deferred basis (until withdrawn) and contributions to an RDSP may further be eligible for a federal grant (up to $3,500 per year). Low income families will also have access to a federal bond ($1,000 per year).

Qualifying for an Registered Disability Savings Plan

Any person can be a beneficiary of an RDSP if he/she meets all of the following criteria:

  • Is eligible for the disability tax credit,

  • Has a valid social insurance number,

  • Is a resident of Canada,

At the time the plan is entered into, has not and will not have turned 60 by the end of the year, except to transfer in an existing RDSP for the beneficiary.

Who can open an RDSP

An adult beneficiary can open an RDSP. If an adult beneficiary is not mentally capable, the legal guardian of property of the beneficiary can open the RDSP.

In the case of a beneficiary who is a minor, a parent, both parents or a legal guardian of property can open and direct the RDSP.

A beneficiary can only have one RDSP at a time, except when transferring from one RDSP to another. The issuer must transfer the assets or value of the assets to another RDSP of the beneficiary when requested and the transferee plan is to be closed within 120 days of the transfer or plan being opened.

Contribution rules

There is a $200,000 beneficiary lifetime contribution limit but there is no annual limit on contributions.

Contributions to an RDSP are not deductible for income tax purposes. Investment income (including interest, dividends and realized capital gains) earned in an RDSP will not be taxed in the plan, but will be taxable to the beneficiary, together with government grants and bonds, when paid out.Contributions are not allowed after the calendar year in which the beneficiary turns 59.

CDSGs and CDSBs – Assistance from the Government of CanadaCanada Disability Savings Grant (CDSG)

Contributions to an RDSP may qualify for a Canada Disability Savings Grant (CDSG) of up to $3,500 per year.

CDSGs are greater for families in lower- and middle-income categories. When annual family net income is less than $87,123 the grant will be:

  • $3 for every $1 contributed on the first $500

  • $2 for every $1 contributed on the next $1,000

When annual family net income is over $87,123 the grant will be:

  • $1 for every $1 contributed up to $1,000

The CDSG has a lifetime maximum limit of $70,000 per beneficiary and the grant is no longer available after December 31 of the year the beneficiary turns 49.

Canada Disability Savings Bond (CDSB) Lower-income families may be eligible for a Canada Disability Savings Bond (CDSB). When annual family net income is $25,356 or less, the bond will be $1,000 per year without the necessity of any contribution. When annual family net income exceeds $25,356 but is less than $43,561, the bond will be pro-rated to receive a portion of $1,000 per year and will be based on a pre-determined formula. The CDSB has a lifetime maximum limit of $20,000 per Beneficiary and the bond is no longer available after December 31 of the year the Beneficiary turns 49. Note - Income amounts shown are for 2013. For a more detailed overview of the RDSP here is a RDSP Investor Guide from Mackenzie Financial.

I would like to encourage you to forward this information to anyone you know who has a family member that could benefit from this. As always we are available if you have any questions about RDSPs or are interested in opening a plan.

Sincerely, Andrew & Peter


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