We wrote a well-received article in 2015 about the Registered Disability Savings Plan (RDSP).
The RDSP gives disabled people and their families a way to save and invest money for long-term security. To qualify, the disabled beneficiary must be:
- Eligible for the Disability Tax Credit (DTC);
- Under age 60; and
- A resident of Canada with a valid social insurance number.
Anyone can contribute to an RDSP, including friends and family, if they have written permission. The contribution deadline each year is December 31st. Contributions are not tax-deductible (unlike an RRSP).
The beneficiary never pays tax on earnings inside the RDSP, only when funds are withdrawn. Any amount can be added to an RDSP each year; there is a $200,000 lifetime contribution limit. RDSP funds have to be withdrawn after age 60, so no contributions can be made after the disabled beneficiary turns 59. Low-income RDSP holders can qualify for government grants, too.
In Ontario, the RDSP asset, and money withdrawn from the plan, are exempt when determining Ontario Disability Support Program (ODSP) eligibility.
Despite the value of the program, only 24% of people who were eligible for the DTC had an RDSP in 2015. In addition, fewer than 40% of the more than 1.8 million adults who report qualifying disabilities are claiming the DTC.
To make the process easier, the 2018 Federal budget allows an adult disabled person’s parent, spouse, or common-law partner to become the holder of that person’s RDSP without becoming their legal representative, if they are living with the disabled person. (Prior to this, a court had to grant legal guardianship.) This improves the process for people with reduced mental or contractual capacity.
With the 2018 income tax year drawing to a close, RDSP holders should be aware of new income matching rates: