Despite its generous benefits, the RDSP remains one of the underutilized plans in Canada. The Canada Disability Savings Grant is available for Canadians who are under 49 and eligible for the Disability Tax Credit (DTC). Yet, only about one third of those who have the DTC (under age 49) hold an RDSP at the end of 2022¹. Furthermore, it was reported by the Canada Revenue Agency (CRA) that only a quarter of people with disability, who are likely eligible for the DTC, applied. Of those who were approved for a DTC certificate, only 64% claimed the credit in 2022.
The Registered RDSP is a long-term savings plan designed to help Canadians with disabilities to achieve financial security. Established in 2008, it provides significant benefits, including tax-deferred growth and government contributions in the form of grants and bonds.
Individuals with disabilities may face various financial challenges due to limited earning potential and high medical costs, making the RDSP a crucial financial tool to address these issues. By offering government grants and bonds, the RDSP helps individuals and families accumulate substantial savings over time. Understanding how the RDSP works and its advantages can help Canadians maximize their financial well-being and secure their future.
Canada Disability Savings Grant and Canada Disability Savings Bonds
One of the biggest advantages of an RDSP is the generous government grant. The Canada Disability Savings Grant (CDSG) can be up to 300% of the amount contributed depending on adjusted family net income, up to a maximum of $3,500 in grants per year.
For example, for a family with an adjusted family net income of $111,733 or less, a $1,500 contribution to the RDSP would generate a grant of $3,500. If the adjusted family net income is higher than $111,733, the maximum grant would be $1,000 on a $1,000 contribution.
The adjusted family net income threshold is indexed each year. For individuals under 18, this amount is the household income (typically of the parents). Once over 18, the threshold is based only on the individual’s income, so it can be worthwhile to wait to make RDSP contributions until a beneficiary turns 18.
Table 1: CDSG amount based on adjusted family net income
CDSG amount when the beneficiary’s adjusted family net income is $111,733 or less:
First $500 in contribution
$3 grant for every dollar contributed.
Maximum amount of $1,500 per year.
Next $1,000 contribution
$2 grant for every dollar contributed.
Maximum amount of $2,000 per year.
CDSG amount when the beneficiary’s adjusted family net income is > than $111,733:
First $1,000 in contribution
$1 grant for every dollar contributed.
Maximum amount of $1,000 per year.
Eligible individuals can receive grants and retroactive grants until December 31 of the year in which they turn 49. An eligible individual can receive up to $70,000 in grants over their lifetime.
The Canada Disability Savings Bond (CDSB) provides up to $1,000 annually to low- income beneficiaries, regardless of whether they contribute to their Registered Disability Savings Plan (RDSP). Like the CDSG, the bond amount is determined based on the beneficiary’s adjusted net family income and is indexed to inflation.
Table 2: CDSB amount based on beneficiary’s adjusted net family income
CDSB Amount Based on Beneficiary’s Adjusted Family Net Income
Income is $36,502 or less
Bond $1,000
Income is between $36,502 and $55,867
Part of the $1,000²
Income is more than $55,867
No bond is provided
Other benefits offered by the RDSP
Another key benefit is tax-deferred growth, meaning investments inside the RDSP can grow without being taxed until funds are withdrawn. Funds in an RDSP can be invested in a variety of options, including stocks, bonds, ETFs, and mutual funds, allowing account holders to tailor their investment strategy to their needs. This allows savings to accumulate more efficiently over time as the investments will compound.
Furthermore, depending on the province, RDSP funds do not impact eligibility for most federal and provincial disability benefits, ensuring that beneficiaries can save without losing crucial financial assistance. Unfortunately, unlike the Registered Retirement Savings Plan (RRSP), contributions to an RDSP are not tax-deductible. However, the withdrawals from an RDSP are structured in a way that minimizes taxation. Since many beneficiaries have lower taxable income, they will likely pay minimal tax on withdrawals, maximizing the plan’s effectiveness. Families and caregivers can also contribute to an RDSP to help provide long-term financial support for their loved ones. This makes the RDSP a great option for parents or guardians who want to ensure their beneficiary’s financial stability, even after they pass away.
RDSP Withdrawals
Since RDSPs are designed for long-term savings, withdrawals are restricted until the beneficiary turns 60, except under specific circumstances. This structure helps ensure that funds are preserved for retirement or future needs. Funds can be withdrawn early, though some government contributions may need to be repaid.
The RDSP is an invaluable financial tool that provides long-term security for Canadians with disabilities. With generous government contributions, tax-deferred growth, and minimal impact on other benefits, it offers a reliable way to build wealth. For help in accessing this highly beneficial program, please feel free to reach out to info@tradex.ca or (613) 233 3394.