What is an RDSP?
A Registered Disability Savings Plan (RDSP) is a registered savings plan that permits tax-deferred investing on behalf of a disabled person. This tax-deferred investment growth, along with government grants and bonds, make an RDSP a powerful investment tool.
How Can a Plan Help?
Contributions have the potential to grow more quickly than if they were invested in taxable investments outside an RDSP. Plus, government incentives promote even faster growth. RDSP beneficiaries are eligible for Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) benefits. These all make a substantial contribution to a brighter financial future.
Even those who don’t have the financial means to contribute to an RDSP can benefit from the CDSB program. Lower-income families may qualify for CDSB payments up to a lifetime maximum of $20,000.
Who is Eligible?
An RDSP is set up in the name of a beneficiary, who receives the proceeds of the plan. The beneficiary must be a Canadian resident under 60 years of age who is eligible for the disability income tax credit.
Typically, accounts are set up by parents or guardians of the beneficiary. The person who establishes the plan is known as the plan holder. An RDSP can be held in joint ownership, with both parents named as plan holders. Other eligible plan holders include a tutor, curator or other individual or organization legally authorized to act on behalf of the beneficiary.
An adult who qualifies for the plan can be both a beneficiary and plan holder. When a beneficiary becomes an adult (age 18 in most provinces) he or she must become the plan holder if legally competent to enter into a contract. If the beneficiary is not legally competent, a guardian or other person or agency legally authorized to act for the beneficiary must be the plan holder.
Who Can Contribute?
Anyone can contribute to an RDSP. However, a contributor must have the written consent of the account holder.
How Much Can Be Contributed?
Up to $200,000 can be contributed over the life of an RDSP. Deposits are made through lump sum or periodic payments. Deposits can continue until the end of the year in which the beneficiary turns 59. They must cease if the beneficiary dies, is no longer a Canadian resident or no longer qualifies for the disability tax credit.