Understanding the Registered Disability Savings Plan

Perhaps the least known registered plan is the Registered Disability Savings Plan (RDSP). Launched in 2008 by the federal government, the RDSP is a tax-deferred registered savings plan open to Canadians eligible for the disability tax credit. Up to $200,000 can be invested in the plan but far less than this amount needs to be contributed to take full advantage of generous contributions made by the government of Canada by way of Canada Disability Savings Grant (CDSG) and Bond (CDSB) money. Contributions are not tax-deductible, but all earnings and growth grow tax-deferred until withdrawn from the plan.

There is a formula that determines the exact amount of government contribution that will be made to the RDSP by way of the CDSG and CDSB. There is a maximum annual entitlement of $1,000 in CDSB (subject to a lifetime maximum of $20,000) and a maximum annual entitlement of $3,500 in CDSG (subject to a lifetime maximum of $70,000). This is based upon a plan holder’s contribution of only $1,500 per year. The exact amount of bond and grant that goes into the RDSP from the government is based upon family income. An RDSP holder can potentially receive $90,000 in CDSG and CDSB over twenty years with only having made $30,000 in contribution prior to age 49. This is a generous long-term savings program meant to assist a qualified individual to put funds away for later in life. The RDSP is best viewed as a long-term savings plan because there are some rules surrounding withdrawals and the amount of time that must pass between the last government contribution and the time when withdrawals can begin. There is a formula for when the time comes to begin withdrawing from the RDSP. Withdrawals must begin by the end of the year in which the beneficiary turns 60. The formula is designed to allow the RDSP to provide a consistent amount of income for about twenty years, however accelerated withdrawals can be made for reasons such as a reduced life expectancy.

In most provinces, including Alberta, the RDSP is considered both an exempt asset for, and exempt income when, determining eligibility for disability benefits. In the 2019 federal budget the government relaxed rules that required RDSP holders to collapse their plan if the beneficiary lost their ‘disability’ status, i.e. lost their eligibility for the disability tax credit.

If opening an RDSP for an individual under the age of majority, who qualifies to be the beneficiary of a plan, then either a parent, legal guardian or person legally authorized to act for the beneficiary can open the RDSP. Then when a beneficiary reaches the age of majority and is contractually competent they can open the RDSP for themselves. If the beneficiary reaches the age of majority and is not contractually competent a qualifying family member can become the holder or open an RDSP.

A qualifying family member includes a spouse or parent of an individual but not, at this time, a sibling unless they have become the beneficiary’s legal guardian.
An RDSP can be set up at Christian Credit Union through Credential Asset Management Inc. by any one of our financial advisers. The rules and specifications of the RDSP are complex and can be overwhelming. Carol, Rob or David would be happy to answer your inquiry and, if able, assist you or a loved one to open a plan.

David van Berkel, CFP®, CKA®
Financial Advisor
Christian Credit Union
Credential Asset Management Inc.

Mutual funds are offered through Credential Asset Management Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal advice. Please speak to your personal financial representative before making any financial planning decision or implementing any strategy.