RDSP: What you need to know

National Post

2009-01-10


The registered disability savings plan, announced in the March, 2007, federal budget, has arrived, giving families with loved ones with a disability a new financial planning tool.

An RDSP allows the plan holder to save up to $200,000 in a tax-deferred account on behalf of a disabled beneficiary who is 59 years of age or younger and qualifies for the disability tax credit.

It's largely modelled after the registered education savings plan and, like RESPs, includes grant and bond incentive programs.

As with RESPs, money contributed to an RDSP is not tax-deductible, there are no annual contribution limits and earnings and growth on all contributions accrue on a tax-deferred basis.

For many families, the generous government assistance for RDSPs may be the primary motivation to set one up.

This assistance comes in two forms: an income-tested matching grant, known as the Canada Disability Savings Grant (CDSG), and an income-tested bond, known as the Canada Disability Savings Bond (CDSB).

The amount of the grants and bonds that can be received is based on "family income."

Whose family income? That depends on the age of the disabled beneficiary.

If the RDSP beneficiary is 18 years or younger, it's the family income of the beneficiary's parents or guardian. Beyond age 18, however, it is the beneficiary's own family income that is relevant.

If family income is less than $75,769, the savings grants are equal to 300% on the first $500 of contributions and 200% on the next $1,000 of contributions.

If family income is more than $75,769, the grant is limited to 100% on the first $1,000 of annual contributions.

The savings bond is meant for lower-income families and is $1,000 per year when family income is below $20,883.

No contributions are required to receive the bond and it is phased out, pro-rata, based on family income between $21,287 and $37,885.

The maximum amount of grants collectible during the beneficiary's lifetime is $70,000 and the maximum in bonds is $20,000.