Understanding RDSPs | Registered Disability Savings Plans

4 minute read

Parents often worry about their children’s future. Will they do well in school? Will they get into college or university? Will they find a career they love? And will they be able to support themselves? For parents of a child with a disability, this worry is magnified, with them often wondering who will take care of their child once they are gone.

Children with a severe disability can have significant barriers to their ability to earn a living in the future. Furthermore, once their parents are no longer able to care for them, there may be extraordinary care expenses that need to be taken into consideration. Sadly, according to the Council of Canadians with Disabilities, Canadians living with a disability are more likely to live in poverty, particularly those with cognitive, intellectual, or psychological disabilities.

If you have these concerns, one of the best ways to save for your child’s future is through a Registered Disability Savings Plan (RDSP). Created in 2008 by the Government of Canada, an RDSP is a savings plan intended to help parents and others save for the long-term financial security of a person who is disabled. In order for someone to qualify, they must be eligible for the Disability Tax Credit, have a social insurance number, be a resident of Canada, and be under the age of 60.

How does an RDSP work?

Contributions to an RDSP can be made until the end of the year in which the beneficiary turns 59 years old. They are not tax deductible. Rather, the contributions grow tax-free. There is no annual limit on the amount that can be contributed to an RDSP, but there is an overall lifetime limit of $200,000. As well, the RDSP rules allow for a rollover of a deceased individual’s RRSP proceeds to an RDSP of the deceased individual’s financially dependent child or grandchild. Finally, income-tested federal benefits are not reduced because of withdrawals from the RDSP. That means that once the beneficiary starts withdrawing money from the RDSP, likely in later life, those funds will not affect their ability to qualify for federal benefits, such as the Canada Dental Benefit.

Who can open an RDSP?

  • If the beneficiary (child) is under the age of 18, a parent or guardian can open the RDSP.
  • If the beneficiary is over the age of 18, and is contractually competent to enter into a plan, they can open the RDSP for themselves.
  • If the beneficiary is an adult but is not competent to enter into a plan, a qualifying person, who is legally authorized to act for the beneficiary, can open an RDSP for the individual.

What is the Canada Disability Savings Grant?

A Canada Disability Savings Grant is an amount that the Government of Canada pays into an RDSP. Depending on your family income, this can be a matching grant of up to 300%. An RDSP can receive a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime.

What is the Canada Disability Savings Bond?

The Government of Canada will pay a bond of up to $1,000 per year to low-income Canadians with disabilities. No contributions have to be made to get the bond. The lifetime bond limit is $20,000.

Here are the steps you need to take to open an RDSP for your child:

  1. First, you or your child must qualify for the Disability Tax Credit. To do this, a medical practitioner needs to certify a Disability Tax Credit Certificate from the Government of Canada. You can apply for this certificate at any time of year.
  2. Then, you must fill out an application for the RDSP, and send it to the Canada Revenue Agency (CRA). This can be done online, or through the mail.
  3. If the CRA determines that you are eligible, you will receive a Notice of Determination by mail. You may now claim the DTC on your income tax return (it will decrease the amount of income tax you or your child pays).
  4. Speak to a member of our Wealth and Investment Team about setting up your child’s RDSP.

There are a lot of options for an RDSP, such as high-interest savings accounts, GICs, mutual funds, bonds, stocks, and exchange-traded funds. Our investment experts can help you determine the best savings options for your child and their future. By setting up an RDSP for your child, you can rest assured knowing that their future is looked after.

Paul Arsenault

Paul Aresenault, CFP®, PFP®, RIS, CKA® is Director, Wealth and Investments
Branch Compliance Manager, Qtrade Asset Management Inc.

Paul has a wealth of experience helping members achieve their goals as a CERTIFIED FINANCIAL PLANNER® professional. He coaches Kindred’s Financial Planning Team and acts as our compliance manager for Qtrade Asset Management Inc. In addition, Paul is passionate about sharing his knowledge around RDSPs with members and organizations.

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