RDSPs – the underutilized savings plan with the biggest government grants

By Jennifer Clyne

You could be missing out 100%, 200% or even 300% matching grants from the government if you qualify for a registered disability savings plan.


What is it?


A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long-term financial security of a person who is eligible for the disability tax credit (DTC). An RDSP is similar to a Registered Education Savings Plan (RESP) in that contributions are not tax deductible, but income earned in the plan is tax exempt until withdrawals are made. The income is then taxed in the hands of the beneficiary. There is no annual limit on how much can be contributed to an RDSP, but the lifetime limit is $200,000. Contributions are permitted until the end of the year in which the beneficiary turns 59.


Who can be a beneficiary?

Individuals who:

  • Are eligible to claim the Disability Tax Credit (DTC) and have received notification of approval from the Canada Revenue Agency (CRA)
  • Have a valid Social Insurance Number (SIN)
  • Are Canadian residents
  • Are 59 years of age or younger on December 31st of the year in which the RDSP is opened


Who can open an RDSP?

  • Legal parent of the beneficiary
  • Guardian, tutor, or curator of the beneficiary, or another individual who is legally authorized to act for the beneficiary
  • A public department, agency, or institution that is legally authorized to act for the beneficiary


Who can contribute to an RDSP?

Anyone can make a contribution to a RDSP, provided that the contributor has the written consent of the account holder.


Why should an RDSP be opened?

To encourage long term savings through an RDSP, the Government of Canada created the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB).

The CDSG is a federal government grant that provides matching contributions of 100%, 200% or 300% up to $3,500 annually, based on a family's net income. There is a lifetime grant limit of $70,000.

The CDSB from the federal government is paid annually into the RDSPs of lower to modest-income families. The CDSB was created to assist families who may not have the resources to make a contribution. A tax-return must be filed to be eligible for the CDSB; specifically a tax-return must be completed two years prior to the year for which you are intending to attract a bond. The maximum annual CDSB payable is $1,000, and the lifetime maximum is $20,000.

Don't worry if you are late in setting up your RDSP or miss making a contribution. Beginning in 2008 and for a maximum of 10 years, unused grants and bonds are carried forward, giving you the opportunity to catch up by contributing more than $3,500 in a calendar year.

It is estimated that roughly 643,000 Canadians are eligible for an RDSP, yet only 15% of this group have opened an RDSP. There are many Canadians who do not realize that they qualify.

Give us a call if you think you might be eligible for a RDSP, and we will help you get started.

Jennifer Clyne
Portfolio Analyst, Tycuda Group
604 546-7592