The Registered Disability Savings Plan (RDSP) offers a way for Canadians living with disabilities, and their families, to save for the future. An RDSP can hold savings or investments. Learn more about how this account works and how to open one.
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What is a Registered Disability Savings Plan (RDSP)?
The Registered Disability Savings Plan (RDSP) is a type of tax-sheltered account designed to help Canadians with disabilities and their families save for the future. The beneficiary of the RDSP can also continue to receive federal and provincial disability benefits.
Similar to other types of registered savings plans like the Registered Retirement Savings Plan (RRSP), an RDSP can hold savings or investments, or both. This means that you can grow your savings tax-free while it is in the RDSP account. As a result, an RDSP can help provide long-term financial security.
Who can be the beneficiary of an RDSP?
The beneficiary of an RDSP is the person living with a disability who will receive the money from the RDSP in the future. A person must be approved for the Disability Tax Credit to be the beneficiary of an RDSP.
An RDSP can only have one beneficiary. The beneficiary must:
- Qualify for the Disability Tax Credit (Disability Amount).
- Be under age 60.
- Have a social insurance number.
- Be a resident of Canada at the time the plan is opened.
The beneficiary can also be the plan holder (the person who opens and manages the RDSP) but does not need to be. An RDSP can be opened by the person living with a disability or a family member or friend.
How do you open an RDSP?
There are a few key steps to opening an RDSP:
- Ensure the beneficiary is qualified for the account. If they are not already approved for the Disability Tax Credit (DTC), they will need to apply for this first. This involves certification from a medical practitioner.
- Choose a financial institution to open the account. Start with this list of financial institutions that currently offer RDSPs in Canada. Shop around and ask questions about the fees involved in the plan, what types of investments are offered, and rules on withdrawals and payments.
- Open the account. If you’re the beneficiary as well as the plan holder, you’ll need your social insurance number, and a piece of valid photo ID. If you’re a legal representative for the beneficiary, bring proof of your position.
- Apply for government grants and bonds. Apply for the Canada Disability Savings Grant and the Canada Disability Savings Bond when you open the RDSP. Ask your financial institution for the application forms.
- Choose your investing strategy for the account. RDSP investments can include savings accounts, GICs, stocks, bonds and mutual funds. When choosing investments, take into consideration the beneficiary’s age and time horizon. Also, consider their estimated annual contributions, the likelihood of making lump-sum withdrawals, and when regular payments from the plan are likely to start.
Learn more about making an investing plan.
Who can be an RDSP plan holder?
The plan holder is the person who opens the RDSP and makes or authorizes contributions on behalf of the beneficiary. The rules for plan holders depend on whether the beneficiary is under the age of majority or an adult. In Ontario, the age of majority is 18.
If the beneficiary is under the age of majority, a qualifying person can open an RDSP for the beneficiary and become the plan holder if they are either:
- A legal parent of the beneficiary.
- A guardian, tutor, or curator of the beneficiary, or another individual legally authorized to act for the beneficiary.
- A public department, agency, or institution that is legally authorized to act for the beneficiary.
If the beneficiary has reached the age of majority and is contractually competent to enter into a plan, they can open an RDSP for themselves. If the existing plan holder is a parent, the parent can remain as the sole plan holder. Or the beneficiary and parent can be joint holders.
If the beneficiary doesn’t have the legal capacity to manage their own financial affairs, the plan holder must be the party legally authorized to act on behalf of the beneficiary.
There can be more than one plan holder for an RDSP. The plan holder can also be changed at any time. Individual plan holders must have a valid social insurance number. Learn more about who can be the plan holder of an RDSP.
How can you contribute to an RDSP?
There is no annual limit on RDSP contributions. However, the lifetime contribution limit for a beneficiary is $200,000. RDSP contributions can be made until the year the beneficiary turns 59.
Until age 49, the beneficiary may also be eligible for government RDSP contributions under the Canada Disability Savings Grant (CDSG), and Canada Disability Savings Bond (CDSB). The amount will depend on the family income of the beneficiary.
RDSP contributions are not tax deductible — you will not receive a deduction on your tax return for contributing. However, your savings and investment earnings grow tax-free as long as they stay in the plan. The beneficiary must start taking regular payments from the plan by age 60.
Caution:
A beneficiary can only have one RDSP at the same time. However, funds may be transferred from one RDSP to a new RDSP, if all funds are transferred and certain conditions are met.
When do you close an RDSP?
There are a few reasons to close an RDSP, most commonly:
- The beneficiary is no longer eligible for the Disability Tax Credit, for example if they have recovered from their disability.
- The beneficiary has died. In this case the plan must close by the end of the calendar year after their death.
Before the financial institution closes the RDSP, they must repay the government any assistance holdback amount that is left in the plan. The assistance holdback amount is the total amount of the Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) paid into the RDSP within the previous 10 years.
Learn more about closing an RDSP.
Summary
An RDSP helps someone with a disability save for the future. Keep in mind:
- An RDSP can hold either savings or investments, or both. You may also be eligible for
- government grants and bonds to add to the plan contributions.
- You can open an RDSP at a financial institution such as a bank or credit union. Make sure you know what fees are involved.
- The beneficiary of the plan can only have one RDSP at the same time. Funds can be transferred from one RDSP to a new one if certain conditions are met.
- There is no annual contribution limit, but there is a lifetime contribution limit of $200,000.
- RDSP contributions are not tax-deductible.
- The beneficiary of the RDSP is the person who will receive payments from it in the future.
- You must be approved for the Disability Tax Credit (DTC) in order to be an RDSP beneficiary.
