Registered Disability Savings Plans Canada

DEFINITION: Registered Disability Savings Plans (RDSPs) are tax-deferred savings plans in Canada that help individuals with disabilities and their families save for the future. RDSPs are designed to provide long-term financial security and are available to Canadian residents who are eligible for the Disability Tax Credit.

1. What is the purpose of a Registered Disability Savings Plan (RDSP)?
The purpose of an RDSP is to provide individuals with disabilities and their families a way to save for the future and secure long-term financial stability. It offers various benefits like tax-deferred growth and access to government grants and bonds.

2. Who is eligible to open an RDSP?
To open an RDSP, an individual must be a Canadian resident, eligible for the Disability Tax Credit, and have a Social Insurance Number (SIN). The plan can be opened by the beneficiary themselves or by a legal representative.

3. Can family members contribute to an RDSP?
Yes, family members, friends, or anyone else can contribute to an RDSP on behalf of the beneficiary. The contributed amount can be eligible for government grants and bonds, further boosting the savings growth.

4. Are there any annual contribution limits for an RDSP?
RDSPs do not have an annual contribution limit. However, there is a lifetime contribution limit of $200,000 per beneficiary. Contributions made to an RDSP may be eligible for government grants and bonds, subject to certain limits and restrictions.

5. What are the government grants and bonds for RDSPs?
The Canadian government provides grants and bonds to assist with RDSP savings. The Canada Disability Savings Grant (CDSG) matches contributions made to an RDSP, with the amount based on family income and contribution levels. The Canada Disability Savings Bond (CDSB) offers additional assistance to low-income individuals without requiring personal contributions.

6. Are the withdrawals from an RDSP taxable?
Withdrawals from an RDSP are considered taxable income for the beneficiary at the time of withdrawal. However, since individuals with disabilities often have lower income levels, they may be subject to lower tax rates. Additionally, any government grants and bonds received must be repaid if withdrawals are made from the plan.

7. What happens to an RDSP if the beneficiary becomes ineligible for the Disability Tax Credit?
If the beneficiary becomes ineligible for the Disability Tax Credit, contributions to the RDSP can no longer be made. However, the accumulated savings within the plan can still remain, and the income generated on those savings can continue to grow tax-deferred.