REGISTERED DISABILITY SAVINGS PLAN (RDSP)
Less than one-third of eligible residents in Canada (up to age 59) have a Registered Disability Savings Plan (RDSP)—about 31.5% in 2020. There are 6.2 million persons with disabilities in Canada, 23% of whom live in poverty. And, more shocking is the fact that 13.1% of young people age 15 to 24 years, are living with a disability, comprising of 4.1% of the population. Government assistance is possible and an important part of year end tax planning.
An RDSP is a registered savings plan that helps Canadians who are eligible for the Disability Tax Credit (DTC) and their families save for long-term financial needs .You can contribute as much as you want, up to the $ 200,000-lifetime contribution maximum. Remember that government contributions and interest go over and above the $200,000 limit. However, you cannot maximize government contributions by contributing a lump sum of $200,000. If you contribute $200,000 as soon as you open the plan, you cannot still contribute to get the grant every year. Within the RDSP grants and investments, returns compound tax-free but are taxable when withdrawn, with various conditions on withdrawals.
When you open an RDSP, you can apply for a Canada Disability Savings Grant and Bond:
- If the beneficiary’s 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.
- A beneficiary may receive the full $3,500 grant one year, and $1,000 the next year (it is completely dependent on their income for two years prior.)
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.
Tradex offers RDSPs through BMO Guardian and Mackenzie Financial. For more details on RDSPs please contact Tradex today!
