Understanding Registered Disability Savings Plans (RDSPs)
Less than one-third of eligible Canadians have a Registered Disability Savings Plan (RDSP) only about 31.5% in 2020. With 6.2 million Canadians living with disabilities and 23% in poverty, RDSPs are vital for financial security. Shockingly, 13.1% of young people (ages 15-24) have a disability.
An RDSP helps those eligible for the Disability Tax Credit (DTC) and their families save for long-term needs. Contributions are capped at a $200,000 lifetime limit, but government contributions and interest exceed this limit. Note, contributing a lump sum of $200,000 won’t maximize annual government grants. Returns within the RDSP grow tax-free but are taxable upon withdrawal, with various conditions.
Benefitting From Registered Disability Savings Plans (RDSPs)
If the beneficiary’s adjusted family net income is $106,717 or less:
- For the first $500 contributed into the RDSP, the beneficiary will receive $3 for every $1 contributed. For the next $1,000, the beneficiary will receive $2 for every $1 contributed.
- The maximum grant for any one year is $3,500. The lifetime maximum grant is $70,000
If the beneficiary’s income is above $106,717:
- For the first $1,000 contributed into the plan, the beneficiary will receive $1 for every $1 contributed.
- The maximum grant for any one year is $1,000. The lifetime maximum is $70,000.
- The disability savings bond ($1,000/year; lifetime maximum $20,000) is available for lower net family income levels.
- You can carry forward up to 10 years of unused grant and bond entitlements to future years, as long as you met the eligibility requirements during the carry-forward years.
If you want to receive the full amount of grant every year, you will need to contribute either $1,000 or $1,500 per year. The amount to maximize government contributions will depend on your income, how many years you’ve had the RDSP open for, and whether you were DTC eligible for years prior to you opening your RDSP
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