The Registered Disability Savings Plan is a great account for individuals living with a disability to build long-term savings. The tax advantage of an RDSP is beneficial for growing savings. With the registered disability savings plan, beneficiaries can also receive financial aid from the Government of Canada.
Keep reading to find out how to open an RDSP and start receiving government bonds and grants.
- What is the RDSP?
- Eligibility requirements for the RDSP
- How to open a registered disability savings plan
What is the RDSP?
Like other registered accounts such as the registered retirement savings plan (RRSP), tax-free savings account (TFSA), and the registered education savings plan (RESP), the RDSP is registered with the Canadian government.
The RDSP typically enables individuals who qualify to receive the disability tax credit to save and invest. Your contributions to a registered disability savings plan are not tax-deductible. This means you can not reduce your taxes when you contribute to an RDSP as you can with an RRSP.
There is no annual contribution limit for the registered disability savings plan. You can save using your plan at any time until you or the account's beneficiary turns 59.
Eligibility requirements for the RDSP
You must be a Canadian resident and have a social insurance number (SIN) to open a registered disability savings plan. If you open the plan for another beneficiary, you do not need to be a resident of Canada. However, the beneficiary must be one.
RDSP beneficiaries must be eligible for the disability tax credit (DTC) and be younger than 60 years of age. The disability tax credit provides a non-refundable tax credit for people with impairments or their qualifying family members. A medical practitioner must certify the disability to be eligible for the credit.
A medical practitioner will fill Form T2201, Disability Tax Credit Certificate. This form declares that you or the intended beneficiary has a disability in the form of severe and prolonged impairment in physical or mental functions. After completing the form, it will be submitted to the Canada Revenue Agency (CRA) for approval.
If an RDSP beneficiary ceases to be eligible for the disability tax credit, no contributions can be made to the plan. There are exceptions to this rule. For example, if the contribution is to a specified RDSP. The RDSP beneficiary can keep the plan open except if the plan holder decides to close it.
It is important to note that an RDSP beneficiary can only have one plan. However, one RDSP can have more than one plan holder at any time. Also, the plan holder can authorize anyone to contribute to the Registered Disability Savings Plan with written permission.
How to open a registered disability savings plan
You can open an RDSP for yourself or a beneficiary through a participating financial institution. As an RDSP plan holder, you can make or authorize contributions to the plan for the beneficiary.
The RDSP issuer, the financial institution you open the plan with, will ask you for supporting documents. Including your government-issued ID, social insurance number (SIN), and other personal details for you and the beneficiary.
If you are considered fit to enter a contractual agreement and you are not a minor (usually 18 years and above), you can open a registered disability savings plan for yourself.
To open a registered disability savings plan for a beneficiary other than yourself, you must be either a legal parent, guardian, tutor or curator of the beneficiary. If you are legally authorized to act for the beneficiary, you can also open an RDSP for them.
For institutions, a public department, agency, or any institution that is legally authorized to act for the beneficiary can open an RDSP for an eligible beneficiary.
A qualifying family member and the RDSP
If an RDSP issuer doubts that a beneficiary is not contractually competent to enter a plan, a qualifying family member (QFM), such as a spouse, common-law partner, or parent, can open an RDSP on behalf of the beneficiary.
However, suppose at any point the beneficiary notifies the RDSP issuer that they opt to become the plan holder, and the issuer, a competent tribunal, or other provincial legal authority determines that the beneficiary’s contractual competency is no longer in doubt. In that case, the family member will no longer qualify to be the plan holder.
Additionally, if the RDSP beneficiary gets a legal representative to act on their behalf, the qualifying family member will relinquish their position as the plan holder to the legal representative.
Note that the rules governing a qualifying family member are subject to changes by December 31, 2023.
Where to open a RDSP
As of 2022, there are only select financial institutions where you can open a Registered Disability Savings Plan. You may need to go into the branch to open a plan.
Also, a few online brokerages offer RDSP accounts to Canadians.
You can open a self-directed RDSP account and buy stocks, options, guaranteed investment certificates (GICs), exchange-traded funds (ETFs), mutual funds, and fixed-income securities with TD Direct Investing.
National Bank Direct Brokerage also allows you to open a Registered Disability Savings Plan using their self-directed trading platform. You can also use their robo-advisor, Investcube, to open an RDSP. Robo-advisors manage and rebalance your investment portfolio for relatively lower fees.
Unlike other National Bank Direct Brokerage’s registered savings accounts, you cannot open the RDSP online. You will need to contact them and fill out the required forms to open an RDSP.
RDSP contribution limits
There is no limitation to how much can be contributed to a Registered Disability Savings Plan in a year. However, a beneficiary cannot have contributions above $200,000 in their lifetime.
The CRA considers previous plan contributions and rollovers when determining the lifetime contribution limit. However, if amounts are transferred from one RDSP to another for the same beneficiary, this does not count towards the $200,000 contribution limit.
If you want to transfer amounts from one Registered Disability Savings Plan to another, you can only do this if:
- the transfer is a direct one from the plan to a new RDSP that the same beneficiary' owns.
- all current plan holders of the RDSP are in support of the transfer
- the entire amount in the current RDSP is transferred to the new RDSP, and the current RDSP is closed immediately after the transfer
Also, if the plan’s beneficiary turned 59 years of age in the previous year from the transfer year, the new RDSP issuer must agree to pay any disability assistance payments (DAPs) where applicable.
If you have a dependent with a Registered Disability Savings Plan, you can roll over your retirement savings from a registered retirement savings plan (RRSP) or registered pension plan (RPP).
You have to note that any rollover into an RDSP is subject to the $200,000 lifetime limit for a beneficiary. In addition, the beneficiary will not receive the Canada Disability Savings Grant and Bond. We will discuss this later in this guide.
To roll over funds from your registered retirement savings plan (RRSP) to a beneficiary in the event of death, the beneficiary of the RDSP must be a child or grandchild that was financially dependent on you at the time of death due to an impairment in physical or mental capacity.
If the RDSP beneficiary is no longer eligible for the disability tax credit (DTC) at any time, the funds from the RRSP, RRIF, or RPP must be rolled over within five years from when they stopped being eligible.
When you roll over retirement savings to a registered disability savings plan for a beneficiary, your issuer will provide a form for you to fill. Additionally, you can get the Form RC4625, Rollover to a Registered Disability Savings Plan (RDSP) from the government of Canada’s website.
You can also roll over funds in a registered education savings plan (RESP) to an RDSP for an eligible beneficiary using Form RC435, Rollover from a Registered Education Savings Plan to a Registered Disability Savings Plan.
Note that when a beneficiary withdraws amounts that have been rolled over into their RDSP, the CRA will recognize it as income and tax the payments.
The Canada Disability Savings Grant and Bond
The registered disability savings plan allows you to apply for the Canada Disability Savings Grant and Bond. Here’s what you need to know about the grant.
You need to contribute to the RDSP to receive the disability savings grant. The Canadian government matches your contribution until the end of the year when you become 49 years of age.
The Canada Disability Savings Grant has a lifetime limit of $70,000. You cannot receive more than this amount in your lifetime. For the annual limit, the amount is $3,500.
You can receive additional financial support from the Canadian government if your income is low through the Canada Disability Savings Bond. Unlike the grant, you can receive money through the bond without making any contributions to your plan.
If you are eligible to receive the disability bond, the government pays it automatically into your plan. The maximum Canada Disability Savings Bond you can receive in a year is $1,000, with a lifetime limit of $20,000.
How to calculate your Canada Disability Savings Grant and Bond
Your contributions and total family income determine how much you can get from the Canada disability savings grant. The bond amount only depends on your family income.
The Canada Revenue Agency (CRA) uses the information you provided on your tax return in the previous two years to determine your RDSP grant and bond amount.
For example, if you are eligible to receive the Canada Disability Savings Grant and Bond in 2022, the CRA will review your tax return for 2020 and determine how much you can receive as grants and bonds.
You can contribute any amount to your plan, and the Canadian government will match your contributions ranging from $1 to $3 per $1 of your contribution, depending on your family income.
As of 2022, if your family income from two years ago was $100,392 and below, to receive the $3,500 annual maximum grant amount, you must contribute up to $1,500. In addition to the $3,500 Canada Disability Savings Grant, if your family income from two years ago was $50,197 and below, you may qualify to receive up to $1,000 in Canada Disability Savings Bond.
Depending on your family income and contributions to the plan, this brings the total maximum annual Canada Disability Savings Grant and Bond to $4,500. (This does not include catch-up amounts where applicable.)
For families with an income greater than $100,392, the maximum grant amount is $1,000. A family income over $50,197 does not qualify for the bond.
The RDSP beneficiary's age is important
When determining your family income, the CRA considers your age. If you or an RDSP beneficiary is 18 years or younger, the family income the CRA uses is that of the parents or guardians until the end of the year you or the beneficiary turns 18.
When you or the RDSP beneficiary turns 19, the CRA will require personal income tax returns for the two years when you were 17 and 18. You can file this tax return retrospectively if you haven’t done that previously.
You will need to sign the grant and bond application form with your financial institution and provide consent for the CRA to start using your income for the Canada Disability Savings Grant and Bond calculations.
After turning 19 years of age, the CRA determines family income based on your income and your spouse or common-law partner’s income, if applicable.
If an eligible RDSP beneficiary did not receive the Canada Disability Savings Grant and Bond, they can catch up with a carry-forward and receive grants and claims from the last ten years. Beneficiaries can only catch up on grants and bonds before the end of the year they turn 49.
The maximum annual grant amount you can receive as catch-up is $10,500, and the maximum catch-up bond amount is $11,000.
Receiving payments from the RDSP
An RDSP beneficiary can receive payments through disability assistance payments (DAPs). Including lifetime disability assistance payments (LDAPs), direct transfers to another RDSP, or repayments under the Canada Disability Savings Act (CDSA) or designated provincial program.
Only the Registered Disability Savings Plan beneficiary or their estate can receive disability assistance payments from the plan.
What are DAPs?
Disability assistance payments (DAPs) are payments a beneficiary receives from an RDSP, or payments made to their estate in the event of death. Beneficiaries can receive DAPs at any time and are usually made up of original contributions to the plan. As well as grants and bonds from the government, rolled-over proceeds, and investment income earned in the account.
The issuer must pay out lifetime disability assistance payments (LDAPs) to a beneficiary at least every year once payments have started. The beneficiary will receive LDAPs until the beneficiary closes the plan or in the event of death.
RDSP beneficiaries must start receiving LDAPs by the end of the year they become 60 years of age. The LDAP payments have an annual withdrawal limit, except the year is a specified year. The LDAP annual limit depends on the beneficiary's age, the fair market value (FMV) of the assets held in the plan at the beginning of the year, and the total periodic payments received from the plan.
An RDSP beneficiary can have a specified year when a licensed medical practitioner certifies that the beneficiary will not live longer than five years. Typically, the practitioner will do this in writing, and the medical practitioner must include the five calendar years from the specified year.
To qualify as a specified year, the beneficiary must provide amedical certificate to the RDSP issuer in that year or earlier. If you do not provide the certification document to the issuer in the year that the doctor certified it, this can delay receiving unlimited annual payments from the plan. The specified years can only start counting when you provide the certification to the RDSP issuer.
RDSP withdrawals and the Assistance Holdback Amount
The assistance holdback amount is typically the total amount of the Canada Disability Savings Grant and Bond a beneficiary receives in an RDSP within a 10-year period minus any repaid amount in those ten years. The beneficiary’s age can also determine the assistance holdback amount that applies to their plan.
Generally, when an RDSP beneficiary withdraws disability assistance payments under the Canada Disability Savings Act (CDSA), the beneficiary will repay the assistance holdback amount to the Employment and Social Development Canada (ESDC). The amount the beneficiary must repay is usually three times that of the disability assistance payments. It is also limited by the assistance holdback amount in the plan.
You cannot make a DAP withdrawal if the fair market value (FMV) of the assets in your RDSP would be lower than the assistance holdback amount for the plan.
Frequently asked questions about the Registered Disability Savings Plan
As a beneficiary, you can withdraw from your RDSP at any time through the Disability assistance payments. However, you must start receiving Lifetime disability assistance payments (LDAPs) when you turn 60.
A plan holder can open an RDSP for themselves or a beneficiary if they qualify to receive disability tax credits. Through the RDSP, you can invest in allowable assets such as stocks, bonds, ETFs, and GICs. Your investment income in the plan remains tax-sheltered until you withdraw from the account. You can also receive government grants and bonds in your RDSP.
You can contribute any amount to your RDSP provided you do not exceed the $200,000-lifetime limit.
The money you receive from the government via the Canada Disability Savings Grant has an annual limit of $3,500 and a lifetime limit of $70,000. The Canada Disability Savings Bond has an annual limit of $1,000 and a lifetime limit of $20,000. Your family income in the previous two years and contributions will determine how much the government contributes to your account.
Only a few financial institutions issue the Registered Disability Savings Plan. You can see a list of the institutions here and contact which one you choose.
If you have a social insurance number and are a Canadian resident eligible for the disability tax credit, you may qualify for the Registered Disability Savings Plan. A medical practitioner, which also includes a nurse practitioner, will certify in writing that you have a disability that qualifies you for the plan.
You do not pay tax on the original contribution to a Registered Disability Savings Plan. However, if a beneficiary receives payments from rolled-over amounts, government grants and bonds, or investment income from the plan, they have to report these as income when filing taxes as they are subject to tax.
Yes, you can catch up on RDSP contributions for up to the last ten years. When you catch up on your contributions, you will receive government grants for those contributions. You can only catch up on RDSP contributions if you are 49 or younger.
When you contribute to your RDSP, you can receive your grant from the government within 6 to 8 weeks.
In the event of death, the Registered Disability Savings Plan must be closed. After repaying government grants and bonds, where applicable, the funds in the plan will be paid out to the beneficiary’s estate. This payment must be made by the end of the following year (December 31) from when the beneficiary died.
A specified disability savings plan (SDSP) is a type of RDSP that caters to beneficiaries with shortened life expectancy. The SDSP enables Registered Disability Savings Plan beneficiaries to access more savings from an RDSP by bypassing the annual withdrawal limit rules.