What is the Registered Disability Savings Plan (RDSP)?

Find answers to commonly asked questions about the RDSP for individuals with disabilities.

The RDSP is a long-term savings plan to help Canadians with a disability to save for the future. If you have an RDSP, you may also be eligible for a Canada Disability Savings Grant (CDSG) or Bond.

The RDSP is available to individuals under 60 years of age who have a long-term disability and are eligible for the Disability Tax Credit. RDSP contributions are limited to a lifetime maximum of $200,000 and are not tax deductible.

Annual RDSP savings attract a CDSG at matching rates of 100 per cent, 200 per cent, or 300 per cent, depending on the beneficiary’s family income and the amount contributed, to a lifetime maximum of $70,000. The maximum is a $3,500 grant on $1,500 in RDSP contributions annually. CDSGs are available up to the end of the year in which a beneficiary is 49 years of age.

RDSPs may also attract a Canada Disability Savings Bond (CDSB) of up to $1,000 annually for low- and modest-income families. CDSBs are paid into RDSPs until the beneficiary is 49 years of age, to a lifetime maximum of $20,000.

RDSP contributions, accumulated earnings and related grants and bonds must be paid to the beneficiary. The principal portion of RDSP payments is tax free; however, the CDSG, CDSB, as well as the investment income earned in the RDSP, is taxed as income of the beneficiary when the funds are withdrawn.

Where a beneficiary receives a CDSG and CDSB under the RDSP, they must wait 10 years after the last contribution to withdraw funds in order to benefit from the grant and bond. If they withdraw funds before 10 years, there is an assistance holdback amount. Where a beneficiary has a shorter life expectancy (five years or less) as certified by a medical doctor, there is an exception whereby an RDSP is designated as a Specified Disability Savings Plan and funds may be withdrawn earlier.

RDSP funds withdrawn (in any amount) are fully exempt as both income and assets under social assistance and similar support (e.g. the Ontario Disability Support Program). This means that:

  • RDSP beneficiaries remain financially eligible for social assistance, and withdrawals from RDSP, including a CDSG or CDSB, do not impact social assistance eligibility or the amount of assistance received
  • ·voluntary contributions to an RDSP (e.g. from family, community groups) do not affect a beneficiary’s eligibility for social assistance or the amount of assistance provided
  • any investment income (e.g. interest, dividends, capital gains) earned from, and reinvested into, an RDSP is exempt as income

Investment income from a Registered Education Savings Plan may be transferred tax free to an RDSP if the plans share a common beneficiary with a severe and prolonged mental impairment that can reasonably be expected to prevent them from pursuing post-secondary education. In the case of Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs), a deceased individual’s RRSP or RRIF proceeds may be rolled over, on a tax-free basis, to an RRSP or RRIF of a financially-dependent infirm child or grandchild.

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Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Vania Karam, CPA, CGA

Vania is the owner of a small tax business and also works for the federal government. She volunteers with Families Matter Cooperative, helping families caring for adults with a developmental disability. She can be reached at vania@vaniakaram.com or on Twitter @VaniaKaram.