THUNDER BAY – Business – The registered disability savings plan (RDSP) is a savings plan to help those eligible for the disability tax credit secure long-term financial security. The incentive to use an RDSP is the eligible savings grants such as the Canada disability savings grant, the Canada disability savings bond, and the investment income earned while using the plan. Contributions can be made until age 59 for the beneficiary, and any contributions made are only taxable to the beneficiary at the time the funds are withdrawn.
RDSP – Who is eligible and who can make contributions?
Those eligible for an RDSP are those who are eligible for the disability tax credit, have a valid social insurance number, and are a resident of Canada. Any individual can make contributions on behalf of the beneficiary to the RDSP.
Contribution Limits and Transfers
There is no annual limit to the amount that can be contributed to the plan, but there is a lifetime limit of $200,000 to any single beneficiary.
A transfer can be made from one RDSP to another as long as the beneficiaries of both RDSPs are the same. It is necessary that all holders of the RDSP agree to the transfer and all funds must be transferred from the current RDSP to the new RDSP.
The Canada Disability Savings Grant
The Canada Disability Savings Grant is an amount that the Government of Canada contributes to an RDSP. The government will pay grants in three different ways, all dependent on the income of the beneficiary’s family. If the beneficiary’s family income is less than $85,414, you would receive $3 for every $1 you contribute to a maximum of $1500, and $2 for every $1 after that to a maximum of $2000. By contributing $1500 annually or $125 monthly, the government of Canada will contribute $3500 annually to your plan. If your family earns more than $85,414, you would receive $1 for every $1 to a maximum of $1000. It is important to note that these figures were based on 2012 but are subject to inflation.
The Canada Disability Savings Bond
The Canada Disability Savings Bond is an amount paid by the government directly into an RDSP. They will contribute up to $1000 a year into the plan for low-income Canadians with disabilities even if no contributions have been made to the plan. The lifetime bond limit is $20,000 and can be paid up until the beneficiary turns 49. If the beneficiary’s family income is less than $24,863 the beneficiary will receive the maximum amount. If the beneficiary’s family income is between $24,683 and $42,707 the bond will pay part of the $1000 depending on a formula in the Disability Savings Act. Any family income higher than $42,707 will not receive any disability savings bonds. These figures were based on 2012 and are subject to inflation as well.
The Bottom Line
RDSPs are a fantastic way for those eligible to save for the long term while receiving the benefits of what the savings grant and savings bond have to offer. Most of those individuals who may be eligible for the plan are not aware that it exists so it is important that we create this awareness as it does go a long way. Should you have any questions, do not hesitate to contact me.
Anthony M. Talarico
Financial Security & Investment Representative
W: 807-343-4788 C: 807-472-6092