An RDSP is similar to a Registered Education Savings Plan (RESP) in that investment income inside the plan is allowed to grow on a tax-deferred basis until payments are made from the plan.
The beneficiary of the RDSP is the person who will receive Disability Assistance Payments (DAPs) or Lifetime Disability Assistance Payments (LDAPs). The lifetime contribution limit is $200,000 per beneficiary and contributions can be made until the end of the year in which the beneficiary turns 59. To be eligible for the plan, the beneficiary must:
- qualify for the Disability Tax Credit (DTC);
- be a Canadian resident when the plan is entered into and have a valid social insurance number (SIN);
- be under the age of 60.
RDSP contributions are not tax deductible, but the funds can be accessed at all times. Contributions, investment income and grants grow tax-free until funds are withdrawn.
For further details about eligibility and contributions, go to the Canada Revenue Agency website.
Who can be a plan holder?
- A disabled person can open an RDSP and be the sole holder if he or she has reached the age of majority and is contractually competent to enter into a plan.
- If the beneficiary is a minor, the eligible holder may be:
- a legal parent, tutor or curator of the beneficiary;
- an individual who is legally authorized to act for the beneficiary;
- a public department, agency, or institution that is legally authorized to act for the beneficiary.
- If the beneficiary has reached the age of majority but is not contractually competent to enter into a plan, a qualifying person can open an RDSP for the beneficiary and become a holder if that person is:
- an individual or organization legally authorized to act for the beneficiary ;
- a legal parent (who was previously a holder of the plan when the beneficiary reached the age of the majority)
Canada Disability Savings Grant (CDSG)
RDSP contributions qualify for a Canada Disability Savings Grant (CDSG) at matching rates of 100%, 200% or 300%, depending on net family income and the amount contributed, subject to a lifetime limit of $70,000 per beneficiary. Grants are paid into the RDSP until the end of the calendar year in which the beneficiary turns 49.
Canada Disability Savings Bond (CDSB)
RDSPs are also eligible for a Canada Disability Savings Bond (CDSB), which pays up to $1,000 per year, subject to a lifetime limit of $20,000 even if no contributions are made to the plan (eligibility depends on family income). Bonds are paid into the RDSP until the end of the calendar year in which the beneficiary turns 49.
For further details about available grants, go to the Canada Revenue Agency website.
Withdrawals from an RDSP
- Withdrawals may be made to the beneficiary at any time. However, all grants and bonds paid into the RDSP in the 10 years preceding a withdrawal must be repaid, as the RDSP is intended to encourage long-term savings.
- Payments from an RDSP are allowed if the value of the plan is higher than the holdback amount (total amount of CDSG and CDSB paid within the last 10 years) after a payment is made.
- Amounts paid include a blend of contributions, grant, bond and income earned. Contributions are non-taxable, but grant, bond and income components are taxable to the beneficiary.
Disability Assistance Payments (DAPs)
A DAP is a payment that can be requested and is paid to the beneficiary. It may be paid at any time after an RDSP is opened.
Lifetime Disability Assistance Payments (LDAPs)
LDAPs must begin by the end of the year in which the beneficiary turns 60. They may start earlier but, once started, they must be paid at least annually until the beneficiary has died.
For further details on the types of withdrawals that can be made from an RDSP, go to the Canada Revenue Agency website (URL: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rdsp-reei/pmnts/menu-eng.html).
Opening an RDSP
Feel free to contact us if you have any questions or would like to open an RDSP. We will be happy to assist you.
You can also get more information about the plan on the Employment and Social Development Canada website.