The Registered Disability Savings Plan (RDSP) was established in 2008 to assist parents and others to save for the disabled person. There are many advantages to have a RDSP established. The RDSP allows for saving to be used as income which is exempt as an asset under the ODSP Income Support guidelines. More importantly, the federal government contributes to the RDSP in the form of Grants and Bonds.
A RDSP is opened and managed by a Plan Holder for the RDSP Beneficiary (tag), the person with the disability who will receive the money in the future.
To qualify as a RDSP Beneficiary, the person must:
- have a Disability Tax Credit,
- be under age 60, have a social insurance number, and
- be a resident of Canada at the time the plan is opened.
The Plan Holder can be a Parent or Guardian and in some circumstances it can be the RDSP Beneficiary, depending upon his or her age and Mental Capacity. If the RDSP Beneficiary is under the age of 18 it is either the Parent or Guardian. If the RDSP Beneficiary is over the age of 18, the RDSP Beneficiary can be a Plan Holder, alone, or with a Parent of Guardian provided the RDSP Beneficiary has the Mental Capacity . For more information on Mental Capacity, see the articles on Guardianship.
Contributing to the RDSP
The Plan allows for maximum contribution of $200,000 by the Plan Holder or anyone who wants to contribute to the Plan. (There can only be one Plan for the RESP Beneficiary.) The main advantage of the RDSP is the contributions made by the federal government in the form of Grants and Bonds. With those contributions come rules on the withdrawal of money from the Plan.
Government Contributions - Grants
The Canada Disability Savings Grant is applied when household income is less than $77,664. If the RDSP Beneficiary is under the age of 18, it is the family income that governs; however, if the person is over 18, it is his or her income. The grant portion will contribute $3 for every $1 on the first $500 and $200 for every $1 on the next $1,000. That equates to $3,500 per year to a maximum of $70,000 lifetime.
Government Contributions - Bonds
Canada Disability Savings Bond is a plan for those whose net income is less than $21,816. The Government will provide $1,000 a year without any contribution making the RDSP accessible to persons with disabilities whose family does not have any resources for contribution.
The contributions can be made up until the RDSP Beneficiary turns 49 years old and must start to withdraw benefits by 59 years of age. The Plan cannot be touched without penalty until ten years after the last government contribution without penalty. The penalty is $3.00 for every $1.00 removed from the plan however the money can be replaced after removal.
The RDSP is an important vehicle for saving to ensure financial security for the person with a disability. With very little contribution, the Plan can provide for significant savings that can be used later in life. Your bank or financial advisor will help explain and provide assist to establish one. If you need assistance locating a financial advisor, contact us.