Understanding the Registered Disability Savings Plan

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Understanding the Registered Disability Savings Plan

Do you have a disability or a child with a disability?

Are you worried about saving for retirement?

Then you should open a Registered Disability Savings Plan (RDSP) to help you start building long-term savings.

The RDSP shares some similarities with the Registered Education Savings Plan (RESP), which was set up to help parents save for a child’s education.

RELATED: What is the RESP and how does it work?

While contributions to the RDSP are not tax deductible, investment earnings grow tax-free in the plan.

Like the RESP, the Canadian government will contribute to your RDSP through a savings grant or bond, which means more money for your retirement savings.

What are the rules for opening an RDSP?

You can open a RDSP as long as:

  • You qualify for the disability tax credit (DTC)

  • You are under 60

  • You are a Canadian resident with a social insurance number

There is no annual maximum so you can add as much as you want to the RDSP each year, but the overall lifetime limit is $200,000.

You can add to the RDSP until the end of the calendar year you turn 59.

A parent, spouse or common-law partner can be the holder of the RDSP.

Anyone can contribute to your RDSP if they have written permission from you.

Withdrawals must start before December 31st the year you turn 60.

Is there government assistance available for my RDSP?

The Government of Canada will help increase your savings through two programs: the Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB).

Grants and bonds are paid only if the RDSP is opened and contributions are made on or before December 31st of the year in which you turn 49.

While you won’t pay any tax on your contributions to the RDSP, when you withdraw the money you’ll be taxed on any CDSG and CDSB contributions and any investment income earned in the plan.

Let’s look at the differences between the grant and bond below.

What support is available from the Canada Disability Savings Grant (CDSG)?

Depending on your family income, the government will pay a matching CDSG.

If you have a family net income of $95,259 or less, the government will pay:

  • A matching rate of 300% on the first $500 contributed, to a maximum of $1,500

  • A matching rate of 200% on the next $1,000 contributed, to a maximum of $2,000

  • For example: if you have a $1500 contribution, you'll receive a maximum of $3500 CDSG in one year

  • There is a lifetime maximum of $70,000 up until the end of the calendar year in which you turn 49

If you have a family net income of more than $95,259, the government will pay:

  • A matching rate of 100% on the first $1,000 contributed, to a maximum of $1,000

  • For example: if you have a $1000 contribution, you'll receive a $1000 CDSG

What support is available from the Canada Disability Savings Bond (CDSB)?

The CDSB is for low-income families, and if you qualify, the government will contribute to your RDSP up to a lifetime maximum of $20,000.

You don’t have to make any contributions to your RDSP to be eligible for the bond.

  • If you have a family net income of less than $31,120, the government will contribute the annual maximum of $1,000 into your RDSP

  • If your family net income is between $31,120 and $47,630, a portion of $1,000 is deposited into your RDSP based on a formula

  • If your family net income is more than $47,630, you're not eligible for the bond

  • There's a lifetime maximum of $20,000 up until the end of the calendar year in which you turn 49

Want to learn more about registered savings plans? Click here for a comparison of TFSA vs. RRSP.

You can also claim unused grant and bond entitlements from the past 10 years, starting in 2008 when the federal government made the RDSP available to Canadians.

If you’re eligible and haven’t opened a RDSP yet, set up a RDSP now and the government will deposit significant dollars into it with little investment from you.

You can get up to an annual maximum of $10,500 for the CDSG and $11,000 for the CDSB.

Let's look at an example.

How to take advantage of unused grant and bond entitlements for the RDSP

John is a low-income adult who qualifies for the disability tax credit.

He decides to open a RDSP in 2019 with $3,500.

Let’s assume that, for each calendar year since 2009, he would have been eligible for the maximum CDSG and CDSB.

From 2009 - 2018, John accumulated:

  • $1,500 each year in CDSG entitlements at the 300% matching rate for a total of $15,000

  • $2,000 each year in CDSG entitlements at the 200% matching rate for a total of $20,000

  • $1,000 each year in CDSB entitlements, giving him an additional $11,000

Thanks to John's $3,500 contribution in 2019, he will receive the maximum amounts for the carry-forward grant and bond:

  • $11,000 in CDSBs

  • $10,500 in CDSGs

He will be able to carry forward $6,000 at 300% of CDSG entitlement and $20,000 at 200% CDSG entitlement to collect in the future if he’s able to make sufficient contributions.

This means John now has $25,000 in his new RDSP account.

 
ACTION GRANT/BOND PAID

CARRY FORWARD From 2009 to 2018
Accumulated CDSG entitlement @ 300%
($1,500 x 10 years)

 

Accumulated CDSG entitlement @ 200%
($2,000 x 10 years)

 

Accumulated CDSB entitlement ($1,000 per year)


$15,000

 

 

$20,000

 

$10,000

Year 2019

Open RDSP

CDSB paid (2009 – 2019) ($1,000 annually)

John contributes $3,500 to his RDSP

Grant paid at $500 x 7 years at 300%
(calculated on first $500 contributed)

$11,000

 


$10,500

CARRY FORWARD – 2019

 

Accumulated CDSG entitlement @ 300%

Accumulated CDSG entitlement @ 200%

 

 

$6,000

$20,000

Disclaimer: The material above is provided for educational and informational purposes only. Always consult a tax professional like FBC regarding your specific tax situation.


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