Registered Disability Savings Plan

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Registered Disability Savings Plan

I wrote this just after the RDSP (Registered Disability Savings Plan) program started , but before any bank had announced what they were doing about it. The rules have changed a little, and are still being tweaked as time passes.

This relatively new savings vehicle introduced by the Government a while ago, has taken a while to appear as a Savings Vehicle in many of the banks. I have checked with TD for a while, but they have finally come out with their version of the RDSP ( Registered Disability Savings Plan ).

This whole delay is a bit frustrating given the speed shown to get the TFSA vehicles in place for TD, yet for the RDSP an almost sloth-like speed in getting this savings vehicle in place, but I guess, better late than never will be the point of view I should take. I would like to point out the BMO has had an RDSP vehicle available for a while (and it almost caused me to move my banking services, and may still yet).

Registered Disability Savings Plan
My Reason to put money in a Registered Disability Savings Plan
Photo by Blair Gable for Money Sense

Who is Eligible for the Registered Disability Savings Plan ?

The government’s explanation is simple enough:

  • is eligible for the disability amount;
  • has a valid social insurance number (SIN);
  • is a resident in Canada and at the time the plan is entered into;
  • is under the age of 60. This age limit is not applicable when a beneficiary’s RDSP is opened as a result of a transfer from the beneficiary’s prior RDSP.

The first point being the most significant. If you have a loved one or someone who you are helping who is disabled they must be identified as disabled by the Government, and that means you must have filled in a T2201 Disability Tax Credit Certificate and had it approved by the government. Once that is in place then you can start looking at the RDSP, as a possible solution for your future financial plan for the disabled loved one.

What is an RDSP?

That’s a good question, I think it is worthwhile reading over the Government’s information on the program, but the quick synopsis from their website is a good starter:

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 (disability amount).

Contributions to an RDSP are not tax-deductible and can be made until the end of the year in which the beneficiary turns 59 years of age. Contributions that are withdrawn are not to be included as income for the beneficiary when paid out of a RDSP. However, the Canada disability savings grant, Canada disability savings bond and investment income earned in the plan will be included in the beneficiary’s income for tax purposes when paid out of the RDSP.

So a useful vehicle for parents with disabled kids worrying about how are their kids going to thrive or survive financially in the future.

Benefits of the Program

There is no limit to the amount of money that can be put into an RDSP in a particular year, however there is a $200,000 lifetime limit in place per person.

The benefit of putting money in this type of savings vehicle is that the government will pay matching grants of 300, 200 or 100 percent of the value added, depending on the income level of the family. This could mean for someone who’s net income is less than $34000 they would get $3 more for every $1 put into the program, because someone who’s net income is over $77000 now, will get $1 more for every $1 put into an RDSP.

For folks with disabled loved ones this is another way to help out financially, and I am glad to see that TD is finally getting on board with the program.

{ 4 comments }

  • Nathan November 9, 2009, 9:48 AM

    The institutions that offer the RDSP currently are as follows;
    CIBC
    RBC
    BMO
    BMO GGOF
    Quebec Association of General Practioners

    There are others in the works, but nothing in place yet.

    Reply
  • Cathy November 6, 2009, 10:17 PM

    Unless I missed this in your explantion, it should be mentioned that the last year an individual can receive the benefit of the grant or bond is at age 49. After this age funds can still be deposited to the RDSP until the age of 60 but the benefit of the RDSP is diminished.

    Reply
  • Scott November 4, 2009, 12:15 PM

    CIBC offers RDSP too.
    You have to call head office though.

    Reply
    • bigcajunman November 4, 2009, 1:00 PM

      Thanks for the update, I think RBC does as well, but they are limited to being Mutual fund only savings plans (I think).

      Reply

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