The Registered Disability Savings Plan (RDSP) is a tax-deferred savings plan for people with severe disabilities. Much like other savings plans such as the RESP, investment income is not taxed. Also, contributions are not tax-deductible until the beneficiary turns 59. Persons who qualify for the Disability Tax Credit also qualify for the RDSP. Furthermore, such a person may qualify for other government benefits. The great thing about RDSPs is that you don’t need to be the plan holder to contribute; just about anyone can. So if anyone you know wishes to support you, this is a good way of doing it.
Qualification Criteria
In order to qualify you must meet the following criteria:
- You are eligible for the Disability Tax Credit
- You have a valid Social Insurance Number
- You are a resident of Canada when the plan was started
- You are below the age of 60
Once you meet the criteria, you can contact any participating financial institution and register yourself as both the beneficiary and the plan holder (so long as you are of the age of majority and are contractually competent to enter into the plan). While there is no annual limit to contributions, there is a lifetime limit of $200 000.
Government Assistance for RDSP
As indicated earlier, a Registered Disability Savings Plan allows you to qualify for other forms of government assistance such as the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB). The CDSG allows your contributions to be matched up to 100%, 200% or 300% up to a lifetime limit of $70 000. Grants are paid up until the end of the year you turn 49. The Canada Disability Savings Bond (designed for low income households) allows government contributions up to $1000 per year regardless of other contributions made to the plan. It can also be paid into an RDSP up to a lifetime limit of $20 000 until the end of your 49th year.
Withdrawing Funds from your RDSP
There are two types of withdrawals from your RDSP: annual and one-time. If you choose to withdraw annually, you may begin in your 60th year and payments continue throughout your lifetime. The one-time option can be exercised at any time, but any bonds or grants received within the last ten years must be repaid.
Other Tax Benefits
There are other tax benefits you can enjoy as an RDSP beneficiary:
- Deduction for medical expenses, including administrative fees involved in completing the form.
- Disability Supports Deduction, which includes any expenses incurred while attending work, school or conducting grant-sponsored research.
- Refundable Medical Supplement, a tax credit available to individuals with low income and high medical expenses.
- Working Income Tax Benefit Disability Supplement for disabled individuals who derive their income from employment or business activities. In order to qualify for this, your income must exceed $1150 and you must be approved for the Disability Tax Credit.
The Registered Disability Savings Plan is a powerful financial tool for people with severe disabilities. Should you be deemed eligible for the Disability Tax Credit, you should take advantage of this plan. Financial security is one of the biggest concerns for someone with a severe disability, especially since their earning capacity is often significantly reduced because of it. The Disability Tax Credit and Disability Savings Plan help to offset some of the financial challenges associated with being disabled. Please share your comments or experiences with us below, or email us at info@actioncind.org.
Disclaimer: This article is not meant to be financial advice. Please check with a qualified professional before making any investment decisions.
