The government’s Registered Disability Savings Plan (RDSP) is designed to help people with a disability save for a more secure financial future. However, while over 280,000 Canadians currently have an RDSP, far more (over 1.6 million in total) could qualify for one immediately.
If you think you or a family member may be among the million-plus Canadians who could qualify for an RDSP, read on to discover how it works and why it’s so beneficial for people with disabilities.
How RDSPs work
RDSPs can help your savings grow much faster by allowing for tax-free growth while the money stays within the account, and providing additional funds from government grants and bonds.
How to qualify for an RDSP
Anyone looking to open an RDSP must first qualify for and receive the disability tax credit, a non-refundable tax credit available to people with “a severe and prolonged impairment” in one of several categories, including walking, hearing, vision, dressing, mental functions and others.
The disability tax credit can considerably reduce the amount of tax that the person with the disability or their supporting family member pays.
Once you or your dependent family member qualify for the disability tax credit, you can open an RDSP. Its key advantages are the tax-deferred growth of investments held in the plan and government contributions.
The Canada Disability Savings Grant and the Canada Disability Savings Bond
The federal government pays a matching amount of 100%, 200% or 300% into an RDSP through the Canada Disability Savings Grant. The amount paid will depend on how much is contributed in a given year and the beneficiary’s family income. The maximum grant room you can generate in a year is $3,500, but unused grant room can accumulate and carry forward for up to 10 years. The most grant you can collect in one year is $10,500, subject to a lifetime grant limit of $70,000.
The Canada Disability Savings Bond is an amount paid directly into the RDSP of beneficiaries from low-income households. The bond is worth up to $1,000 per year; no contributions are needed to receive the bond, and its lifetime limit is $20,000. The contribution amount depends on the beneficiary’s adjusted family net income.
RDSP contribution limits
There is no annual RDSP contribution limit, though there is a lifetime limit of $200,000. While you could, in theory, contribute the lifetime total in one year, given that the most grant you can receive in a year is $10,500 (and then only if you had accumulated some grant room from prior years), you would miss out.
RDSP contributions can be made up until December 31 of the year in which the beneficiary turns 59; the following year, RDSP withdrawals from the plan start, and no further contributions can be made.
RDSP investment options
As with other registered accounts, (like RESPs and TFSAs), you don’t have to hold just cash in an RDSP. Savings typically grow faster when you have a diversified portfolio of investments, rather than just a cash savings account. Interest, dividend payments (when companies pay their shareholders) and capital gains (when your investments grow in value) can all help your savings grow faster.
These are the most common types of investments allowed to be held in an RDSP:
- Guaranteed investment certificates.
- Assets listed on designated stock exchanges, including:
- Shares of publicly listed companies.
- Exchange-traded funds (ETFS).
- Real estate investment trusts (REITs).
- Mutual funds and segregated funds.
- Canada savings bonds and provincial savings bonds.
- Corporate bonds.
Invest in an RDSP with IG
An IG Wealth Management Advisor can help you open a Registered Disability Savings Plan for yourself or your dependent. They’ll be able to recommend the most impactful mix of investments to include within the RDSP, according to the timeframe involved and your risk tolerance level, and help you maximize contributions from the Canada Disability Savings Grant.
They’ll also ensure that any contributions to the RDSP fit in with your overall financial plan, in the most efficient way possible.
Speak to an advisor
Connect with an IG Advisor to uncover your personal financial goals, and how you can achieve them.