Grants, bonds can beef up RDSPs

Deborah Leahy

April 2012

The registered disability savings plan (RDSP) was introduced in 2008 to help individuals with severe and prolonged disabilities save for their long-term financial security. However, many Canadians have not taken advantage of its benefits, which can help individuals provide a better future for themselves and their families.

A participant may hold only one RDSP account, which is limited to a lifetime total of $200,000 in non-government contributions. Contributions are not tax deductible, and the plan is not designed as a short-term savings vehicle or for regularly withdrawing money in the short term.

RDSP benefits include:

• Contributions accumulate tax-free until the money is withdrawn.

• Contributions do not effect federal benefits and have little, if any, effect on provincial benefits.

Grants and bonds available

If eligible, you can help build your RDSP with government grant and bond contributions.

Savings bonds: The government may pay into an RDSP a Canada disability savings bond of up to $1,000 annually, up to a maximum lifetime limit of $20,000, dependent only on family net income with no personal contributions required.

Savings grants: An RDSP beneficiary may receive a Canada disability savings grant of up to $3,500 per year, up to a maximum lifetime limit of $70,000. The amount is based on contributions and family net income.

Both bonds and grants are available until the year the participant reaches age 49.

Generally, bonds and grants must remain in the account for at least 10 years before a withdrawal may be made, and withdrawals must begin by the end of the year in which the participant reaches age 60. Additionally, for any account established on or after January 2011, the RDSP may carry forward unused grant and bond entitlements up to 10 years preceding its opening.

Rollover option

As of July 2011, a deceased individual’s registered retirement savings plan, registered retirement income fund or registered pension plan can be rolled on a tax-deferred basis into an RDSP for a financially dependent infirm child or grandchild. This option is often overlooked.

It’s important to be informed about the steps you can take today for your financial future, including knowing whether you or a family member qualify for the RDSP.

Deborah Leahy is a financial adviser with Edward Jones, specializing in assisting seniors.