A Registered Disability Savings Plan (RDSP) is a plan intended to help save for the long-term financial security of a person with a disability (the beneficiary).  It can be purchased at participating financial institutions by anyone under the age of 60 with a valid social insurance number, who is a resident of Canada, and qualifies for the disability tax credit. A disabled person who is a minor or not legally competent to take care of their own affairs may have parent or anyone having authority to act on their behalf to open the plan.

There are no maximum contributions that can be made to the plan in any particular year, but the lifetime maximum is $200,000.  Contributions are not tax deductible, however, tax is paid only on the income earned in the plan but not until the income is withdrawn.

Another source of growth in the Plan is government grants and bonds.  The Canada Disability Saving Grant is an amount that the government will deposit to the plan matching the contributions made (300%, 200% or 100% based on the beneficiary’s family income). The maximum is $3,500 per year up to $70,000 over the beneficiary’s lifetime (in other words, 20 years of contributions).  These grants are paid on contributions made until December 31 of the year the beneficiary turns 49 years old.

The Canada Disability Savings Bond is an amount that the federal government pays into the RDSP of an individual with a family income of less than a specified amount (in 2010, $40,970 – indexed annually to inflation). The maximum grant is $1,000 for income less than $23,855 (2010) and prorated between $23,855 and $40,970.  The lifetime bond limit is $20,000 and no contributions are required to the plan to receive this bond. However, a plan must be established in order to get this bond.

Payments must be received from the plan by the end of the year that the beneficiary turns 60.  The maximum amount that can be withdrawn each year is determined by a formula based on the age of the beneficiary and plan value.

Contributions must remain in the plan for a minimum of 10 years from the time the last contribution was made in order to not forfeit any grants or bond.  Withdrawals from the plan have no impact on other income tested benefits such as social service payments.  Income tax must be paid on the portion of income, grants and bonds withdrawn from the plan, but not the original contributions.

In the case that the beneficiary is no longer disabled, the RDSP must be closed and all amounts remaining in the plan must be paid out by December 31st following the first full calendar year that they are not considered disabled.  In addition, all grants and bonds must be paid back to the government.

The RDSP must be closed and all amounts remaining in the plan must be paid out to the estate and the plan terminated by December 31 following the calendar year that the beneficiary dies.  Remaining grants and bonds must be paid back to the government.

For more information go to:  Guide RC4460 and the RDSP website.