Table of Contents

What is an RDSP?  
 

The Registered Disability Savings Plan (RDSP) offers benefits that are too good to ignore. Created by the federal government, the RDSP provides people with disabilities with an easy and effective way to save and invest for their long-term financial security. What's more, the government offers incentives in the form of grants and bonds to help you accumulate more. If you are a person with a disability or provide care to someone with a disability, you'll definitely want to know more about RDSPs.


How Can a Disability Savings Plan Help?  
 

RDSPs have three important advantages over other savings plans:

  1. As a registered savings plan, earnings grow tax-free until money is withdrawn. This means RDSP contributions can grow faster, helping to accumulate more in the plan.
  2. RDSPs may be eligible for government incentives of up to an annual amount of $3,500 to a lifetime maximum of $70,000 in grants and an annual amount of $1,000 to a lifetime maximum of $20,000 in bonds, which can substantially boost an RDSP's value.
  3. Income payments from RDSPs do not affect income-tested federal government programs, including Old Age Security, the Guaranteed Income Supplement and the Canada Pension Plan. In most provinces and territories, you will still qualify for existing provincial social assistance programs if you have an RDSP.

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Who can take advantage of an RDSP  
 

Anyone who is eligible for the Disability Tax Credit may be the beneficiary of an RDSP. To qualify, the beneficiary must:

  • Be a Canadian resident
  • Have a valid Social Insurance Number
  • Be under the age of 60.
  • Complete a Disability Tax Credit Certificate (Canada Revenue Agency Form T2201) with the assistance of a qualified practitioner and receive notification of approval from the Canada Revenue Agency.

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Who Can Contribute?  
 

Anyone can contribute to an RDSP as long as they have written permission from the account holder. There is no annual limit on contributions and the lifetime maximum is $200,000. However, contributions must cease by the end of the year in which the beneficiary reaches age 59, no longer lives in Canada, no longer qualifies for the Disability Tax Credit, or when the beneficiary dies. Consider making automatic RDSP contributions at regular intervals throughout the year. You will find it easier on your budget and a convenient way to reach your target annual contribution amount before the December 31st deadline each year. Keep in mind that the sooner your money is invested in an RDSP, the longer it has to grow tax-deferred.


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Government grants and bonds  
 

RDSPs are specifically designed to build up a nest egg for the future financial security of the plan's beneficiary. What makes RDSPs so effective is that you can earn valuable incentives in the form of government grants and bonds.

There are two types of government incentives available through RDSPs. The Canada Disability Savings Grant can add an annual amount of $3,500 up to a lifetime maximum of $70,000 to an RDSP. The Canada Disability Savings Bond can add up to an additional $1,000 annually to an RDSP to a lifetime maximum of $20,000. How much you are eligible to receive in grants and bonds will depend on the family income of:

  • the beneficiary (and spouse, if applicable), beginning in the calendar year the beneficiary reaches age 19.
  • the beneficiary's family, up to and including the year in which the beneficiary reaches age 18.

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Plan contributions to maximize grants and bonds  
 

Grants and bonds are only available until the end of the calendar year in which the beneficiary reaches age 49, so plan your contributions to maximize these incentives. Don't worry if you are late in setting up your RDSP or miss making a contribution. Beginning in 2008 and for a maximum of 10 years, unused grants and bonds are carried forward, giving you the opportunity to catch up by contributing more than $3,500 a year. Note that when catching up, the maximum payable in any one year is $10,500 in grants and $11,000 for bonds.

No additional forms need to be filled out. You will receive past grants and bonds as long as you were eligible for the Disability Tax Credit in the years for which you intend to catch up and your tax returns were filed for the two years prior to each year you intend to receive past grants/bonds. You need only contribute the correct amount to receive all of the grants/bonds to which you are entitled.

Here is an example:

Peter is 26, single and works part time. With a net annual income of $22,000, he is eligible for full grants and bonds. In addition, he currently has five years of unused past grants and bonds. His parents are eager to help out and want to know how much they should contribute to maximize grants. When catching up, the maximum payable each year is $10,500 in grants and $11,000 in bonds.

Peter's age Peter's contribution Canada Disability
Savings Bond
Peter's annual
Contribution
Canada Disability
Savings Grant
26 $0 $7,000 $3,500 $10,500
27 $0 $1,000 $5,000 $10,500
28 $0 $1,000 $5,000 $10,500
29 - 49 $0 $1,000 per year until $20,000
maximum reached
$1,500 per year until $70,000
maximum grant is reached
$3,500

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Canada Disability Savings Grant (CDSG)  
 

RDSPs are specifically designed to build up a nest egg for the future financial security of the plan's beneficiary. What makes RDSPs so effective is that you can earn valuable incentives such as the Canada Disability Savings Grant (CDSG).

The maximum annual CDSG is $3,500 for families with net incomes of equal or less than $87,907. The grant amounts to $3 for every $1 contributed to an RDSP on the first $500 of contributions; and $2 for every $1 contributed on the next $1,000 of contributions. Families with higher net incomes are eligible for $1,000 annually. Grants of $1 are provided for every $1 contributed on the first $1,000 of contributions.

Before the end of the year in which the beneficiary turns 18, the family income of the beneficiary's parents or legal guardian is used to determine grant amounts. In the year the beneficiary turns 19, payments are based on his or her net income (and spouse's net income if applicable). A beneficiary may be eligible to receive grants until the end of the year in which he or she turns 49.

Annual Family Net Income Matching CDSG on
Annual RDSP Contributions
Maximum Annual CDSG
Less than or equal to $87,907* On the first $500 in annual contributions
($3 for every $1 contributed)
$1,500
  On the next $1,000 in annual contributions
($2 for every $1 contributed)
$2,000
     
Greater than $87,907* or no income info with CRA On the first $1,000 in annual contributions
($1 for every $1 contributed)
$1,000

For further information regarding the CDSG please refer to the Human Resources and Skills Development Canada website.

*The government sets the income thresholds annually. Illustrated are 2014 income thresholds, based on 2012 net annual income.


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Canada Disability Savings Bond (CDSB)  
 

Lower income individuals living with a disability may be able eligible to receive the Canada Disability Savings Bond (CDSB). The CDSB pays a maximum of $1,000 per year, to families with annual income equal to or below $25,584. Those with family incomes of greater than $25,584 and less than $43,953 receive a prorated amount based on the $1,000 maximum. Families with incomes of more than $43,953 are not eligible for the CDSB. CDSB has a lifetime maximum of $20,000.

Before the end of the year in which the beneficiary turns 18, the family income of the beneficiary's parents or legal guardian is used to determine bond payment amounts. In the year the beneficiary turns 19, payments are based on his or her net income (and spouse's net income, if applicable). A beneficiary may be eligible to receive bonds until the end of the year in which he or she turns 49.

Annual Family Net Income Canada Disability Savings Bond (Annually)
$25,584* or less $1,000
greater than $25,584 and less than $43,953* Prorated amount up to $1,000
More than $43,953* None

For further information regarding the CDSB please refer to the Human Resources and Skills Development Canada website.

*The government sets the income thresholds annually. Illustrated are 2014 income thresholds, based on 2012 net annual income.


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Using the money in an RDSP 
 

When the beneficiary needs to use the money in their RDSP, they can access it in two ways : regular annual income payments (Lifetime Disability Assistance Payments) and periodic lump-sum payments (Disability Assistance Payments). Payments can be used for any purpose and are made up of contributions and earnings (investment returns, grants and bonds). Income tax only applies to the earnings portion of any payment and is attributed to the beneficiary. If the beneficiary has a low income, it's possible that they may pay very little or no tax on this income. Plan to earn all grants and bonds well in advance of taking money out of your RDSP. Grants and bonds received in the 10 years preceding a payment, withdrawal or termination of an RDSP have to be repaid to the government. Lifetime Disability Assistance Payments can begin at any time but must commence by the end of the year in which the beneficiary reaches age 60 and continue until the RDSP is terminated or the beneficiary dies. Payments are limited to an annual maximum based on the beneficiary's life expectancy and the value of the plan. Disability Assistance Payments are available beginning in the calendar year when the beneficiary turns 28; however this does not apply if the contributions are greater than all grants and bonds received. Special payment arrangements can be made for beneficiaries who have a life expectancy of five years or less. When the beneficiary dies, grants and bonds earned in the preceding 10 years are returned to the government and the remaining RDSP balance is paid to the beneficiary's estate.


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Rollover to a Registered Disability Savings Plan 
 

As of July 1, 2011, the Registered Disability Savings Plans of financially dependent children or grandchildren are eligible to receive funds from a deceased parent or grandparent's Registered Retirement Savings Plan (RRSP), Retirement Income Fund (RIF) or Registered Pension Plan (RPP). The proceeds 'rollover' on a tax-free basis and count toward the RDSP lifetime contribution limit of $200,000, but are ineligible for matching Canada Disability Savings Grants. Contributions from RRSP, RIF & RPP rollovers and earnings are tax deferred while held within the plan, but are subject to tax at the beneficiary's marginal tax rate in the year in which they are withdrawn from the plan.


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Registered Disability Savings Plans

October 9, 2012

In this five-chapter video series about RDSPs, learn about eligibility, contribution limits and beneficiary parametres with BMO's legal and product experts.

Trevor Philp, Product Manager, BMO Investments Inc.
Brendon Pooran, Principal at Pooran Law