Planning for the future can be challenging, especially for individuals with disabilities. Fortunately, the Registered Disability Savings Plan (RDSP) offers a robust solution to help secure long-term financial stability. This federal initiative allows Canadians with disabilities to save effectively for their future while safeguarding their eligibility for various benefits.
What is an RDSP?
The RDSP is a federal savings plan that supports individuals with disabilities by offering a tax-advantaged way to grow their savings. As a long-term investment account, it doesn’t affect eligibility for federal benefits or most provincial programs, making it an excellent option for securing long-term financial stability.
Here’s what makes it a powerful tool:
Tax-deferred Growth
Contributions and investment earnings within the RDSP grow tax-free. Taxes are only due on the funds withdrawn, and even then, only on the portion that includes government grants, bonds, and investment income.
Contribution Limits
You can contribute up to $200,000 to the RDSP, receive up to $90,000 in government contributions, and benefit from unlimited investment growth.
Government Contributions
The RDSP includes additional government contributions through the Canada Disability Savings Bond and the Canada Disability Savings Grant.
Why consider an RDSP?
The RDSP offers several advantages for long-term financial planning:
- Enhanced Savings Potential: The tax-deferred nature of the RDSP, combined with government grants and bonds, can significantly boost your savings.
- Preservation of Benefits: RDSP savings do not affect most federal or provincial benefits, ensuring you maintain access to vital support.
- Flexibility: Beneficiaries have the freedom to use RDSP funds as needed once withdrawals are made, allowing for personalized financial planning.
RDSP eligibility requirements
To open an RDSP, you need to meet the following criteria:
- Must be a resident of Canada
- Both the beneficiary and the holder must have a valid SIN
- Open the RDSP before the end of the year you turn 60 (or 49 to qualify for government contributions)
- Must be approved for the Disability Tax Credit (DTC)
Understanding beneficiaries and holders
An RDSP requires both a beneficiary (the individual who will benefit from the savings) and a holder (the person responsible for managing the RDSP).
- Minors: Parents or legal guardians usually manage the RDSP until the beneficiary reaches adulthood.
- Adults: If an adult beneficiary is capable of managing their own affairs, they can be the holder. If not, a Qualifying Family Member (QFM) or legal representative can act as the holder.
Maximizing RDSP contributions: Grants and bonds
The RDSP includes two main government contributions:
1. Canada Disability Savings Bond
Offers up to $1,000 annually, with a lifetime maximum of $20,000. This is available without any personal contributions, making it ideal for low-income individuals.
2. Canada Disability Savings Grant
Matches up to $3 for every $1 you contribute, up to a maximum of $3,500 annually, and a lifetime total of $70,000. To maximize the grant, you should deposit $1,500 per year or $125 per month.
Importance of tax filing
To ensure you receive the maximum government contributions, it is crucial to file your taxes each year. If you do not file, the government may assume you are a high-income earner, which could reduce your eligibility for grants and bonds. For beneficiaries under 18, their guardians’ income is used; once they turn 19, their own income is considered.
Opening and managing an RDSP
You can open an RDSP through many financial institutions or with the help of independent financial advisors. When selecting where to open your RDSP, consider factors such as fees, investment options, and the institution’s expertise with RDSPs.
If you’re unhappy with managing your RDSP, you can transfer it to another institution. Just be sure to initiate the transfer process with the new institution to avoid penalties and potential loss of government contributions.
RDSP withdrawal
While the RDSP is intended for long-term savings, you can make withdrawals if needed. Keep in mind:
- Mandatory Withdrawals: You must begin by the end of the year when you turn 60.
- Proportional Repayment Rule: Withdrawals made within ten years of receiving government grants or bonds may require repayment of those amounts at a rate of $3 for every $1 withdrawn.
- Flexibility: Higher personal contributions can offer greater flexibility and control over withdrawals.
How we can assist
While we do not provide assistance with RDSPs, Resolute Legal specializes in supporting Canadian workers through various legal challenges. Our team of employment and disability lawyers is experienced in representing clients in matters involving denials of:
- Long-term disability claims
- CPP disability benefits
- Workers’ compensation
- Disability Tax Credit
- Wrongful employment termination
- Workplace harassment and discrimination
If you need legal assistance in these areas, we are here to help ensure your rights are protected and that you receive the support you deserve.