DEFINITION: Disability Savings Plan Canada
A Disability Savings Plan (DSP) is a government-sponsored savings plan in Canada designed to help individuals with disabilities and their families save for long-term financial security.
1. What is a Disability Savings Plan (DSP) in Canada?
A Disability Savings Plan is a specialized savings account that allows individuals with disabilities and their families to save money for future expenses and long-term financial security.
2. How does a Disability Savings Plan work?
When you contribute money to a Disability Savings Plan, the government may also contribute money in the form of grants and bonds, depending on the individual’s financial situation. The money in the DSP can grow tax-free until it is withdrawn.
3. Who is eligible to open a Disability Savings Plan?
Individuals who are eligible for the Disability Tax Credit (DTC) in Canada, as certified by a medical professional, can open a Disability Savings Plan. They must also be under 60 years old and be residents of Canada.
4. What are the benefits of opening a Disability Savings Plan?
By opening a Disability Savings Plan, individuals with disabilities and their families can benefit from government contributions, tax-free growth of savings, and the potential for investment income. It provides a means to save for expenses such as medical treatments, education, housing, and other disability-related costs.
5. Can I withdraw money from a Disability Savings Plan at any time?
While money in a Disability Savings Plan can be withdrawn at any time, it is important to note that any withdrawals may have tax implications and may affect the government grants and bonds received. It is advisable to consult with a financial advisor before making any withdrawals.
6. Are there annual contribution limits for a Disability Savings Plan?
Yes, there are annual contribution limits for a Disability Savings Plan. The lifetime contribution limit, as of 2021, is set at $200,000. The specific annual contribution limit may vary based on the individual’s income and the contribution made by the government.
7. What happens if the beneficiary of a Disability Savings Plan becomes ineligible for the Disability Tax Credit?
If the beneficiary of a Disability Savings Plan becomes ineligible for the Disability Tax Credit, they will no longer be eligible for government contributions. However, the funds already accumulated in the plan will still be available for the individual’s use, and they can continue to benefit from the tax-free growth of their savings.