Registered Disability Savings Plan

Introduction

A Registered Disability Savings Plan (RDSP), like an RESP, uses after-tax dollars to build up savings in a tax-deferred plan; the beneficiary, who must also be eligible for the disability tax credit to qualify, receives no upfront tax deduction. Rather, he or she draws down the savings, paying tax at a potentially lower income bracket. They are a relatively new financial planning tool, announced in the 2007 federal budget for the 2008 tax year (with an extension to March 2, 2009 to receive federal support grants and bonds).

Structure

Contributions can be made by the beneficiary, family and others who are authorized by the planholder. The contributions are not tax-deductible, but are tax-exempt as long as they remain in the plan. They become taxable when withdrawn as a disability assistance payment. Resident Canadians who are under 60 can contribute, to a lifetime maximum of $200,000. There is no annual contribution limit, in contrast to RRSPs and RESPs.

Contributions can be supplemented by the Canada Disability Savings Grant. Human Resources and Skills Development Canada (HRSDC) specifies: "Depending on the beneficiary’s family income and contribution level, the Government may grant up to $3 for every $1 in contributions received by an RDSP in a year, to a maximum of $3,500. The lifetime grant limit is $70,000. A Canada Disability Savings Grant can be paid into an RDSP on a contribution made to the beneficiary’s RDSP by December 31 of the year the beneficiary turns 49 years old." The family income threshold is $75,769 (in 2008 dollars, indexed to inflation). Below that income, there is a 3-to-1 dollar grant on the first $500 contribution, and a 2-to-1 grant on the next $1000 (but nothing after that). Above that income threshold, there is a simple dollar-matching grant on the first $1000 contribution.

There is also a Canada Disability Savings Bond for low-income families. According to HRSDC, the "Canada Disability Savings Bond is paid by the Government of Canada directly into a registered disability savings plan. Depending on the beneficiary’s family income, the Government of Canada may contribute up to $1,000 each year. The lifetime bond limit is $20,000. A Canada Disability Savings Bond can be paid into an RDSP until the year in which the beneficiary turns 49 years old." The full bond is paid up to a family income of $21,287 and phased out at $37,885 (in 2008 dollars, indexed to inflation).

Each RDSP has one beneficiary. The planholder can change, whether it is a parent, a legal guardian or a public agency.

As registered plans, they must be maintained by a trust company licensed to conduct business in Canada. The trust company must also have entered into an agreement with HRSDC to administer the disability savings grants and bonds.

Questions

1. Who can set up an RDSP?
2. Payments into the RDSP
3. Payments out of the RDSP
4. Taxable amount of disability assistance payments
5. Termination of the RDSP

Calculator

The calculator will help Canadian families project the estimated future value of an RDSP, and will help determine how it can enhance the quality of life for a family member with a disability. By answering a few simple questions, the calculator will determine the amount of Grant and Bond a person is eligible for, and the approximate value of future payments.

RDSP Calculator Version 1.0

Other Disability Savings Options

Henson Trusts

Links

• Registered Disability Savings Plan Blog
• Financial institutions which offer RDSPs
• Provincial/territorial treatment of RDSPs
• Tax Topics and Resources for Persons With Disabilities