What is an RDSP?
A Registered Disability Savings Plan (RDSP) is a Canadian government-registered savings plan designed in 2008 to help people with disabilities and their families save for long-term financial security. It offers several financial benefits, including matching government contributions, to encourage savings for individuals with disabilities.
Here are key features of an RDSP:
1. Tax-Deferred Growth:
- The money invested in an RDSP grows tax-deferred. While contributions themselves are not tax-deductible, any income earned within the plan (like interest, dividends, or capital gains) is not taxed until the funds are withdrawn.
2. Government Contributions:
- The Canadian government offers two major types of contributions to RDSPs:
- Canada Disability Savings Grant (CDSG): The government may match contributions made by family or friends up to 300%, depending on the beneficiary’s family income and contribution amount.
- Canada Disability Savings Bond (CDSB): For low-income individuals, the government may contribute up to $1,000 annually without requiring any contributions from the account holder.
3. Lifetime Limits:
- There is a lifetime contribution limit of $200,000 for an RDSP, but there is no annual limit on how much can be contributed in any given year.
4. Withdrawals:
- Funds can be withdrawn when needed, typically to support the beneficiary’s future expenses. Withdrawals consist of contributions, government grants, bonds, and any investment growth. However, withdrawals must follow specific rules to avoid triggering the repayment of government contributions (if made within certain time frames).
5. Eligibility for the Disability Tax Credit (DTC):
- The beneficiary must be eligible for the Disability Tax Credit (DTC), which means having a severe and prolonged physical or mental disability as certified by a medical professional.
The purpose of the RDSP is primarily aimed at providing **long-term financial security** for people with disabilities, helping ensure that they have financial support later in life. It’s a powerful savings tool because of the government's matching programs, especially for families with lower incomes, and it encourages long-term savings for individuals with disabilities.