Advantages of Registered Disability Savings Plan (RDSP)
One of the greatest benefits of the RDSP is the Canadian Disability Savings Grant (CDSG) you can receive from the government up until you turn 49. The CDSG you receive annually is determined by your family’s net income and the amount you contribute to the plan.
2021 CDSG thresholds are as follows:
Amount of CDSG grant when family income is $98,040 or less:
- on the first $500 contribution—$3 grant for every 1 dollar contributed, up to $1,500 a year
- on the next $1,000 contribution—$2 grant for every 1 dollar contributed, up to $2,000 a year
Amount of CDSG grant when family income is more than $98,040:
- on the first $1,000 contribution—$1 grant for every 1 dollar contributed, up to $1,000 a year
Opening an RDSP
RDSPs can be opened at most financial institutions in Alberta. Before opening an RDSP, identify who will be the beneficiary and holder of the account. If you qualify for the Disability Tax Credit you can open the RDSP as a holder of the plan and assign yourself as the beneficiary. If the plan is for someone else that qualifies for the Disability Tax Credit, you can assign them as the beneficiary, and you can be the holder of the plan, if you are one of the following:
- a legal parent of the beneficiary
- a guardian, tutor, or curator of the beneficiary, or another individual who is legally authorized to act for the beneficiary
- a public department, agency, or institution that is legally authorized to act for the beneficiary
Beneficiaries who are younger than 19 or not contractually competent will need a family member as a holder to open the RDSP.
It’s important to consider the following before opening an RDSP:
- Understand the types of investments you can purchase in the account.
- If using a financial advisor, confirm that they are registered.
- Ask questions about the different types of charges and fees related to the plan and the investments you purchase within it. Shop around to compare fees and other charges at other firms and ensure these fees align to your expectations.
Contributing to an RDSP
There is no annual contribution limit for an RDSP but there is a lifetime contribution limit of $200,000. Anyone can contribute to an RDSP, as long as they have the written permission of the plan holder.
Withdrawing funds from an RDSP
Regular withdrawals from an RDSP must begin by December 31 of the year the beneficiary turns 60. When withdrawing funds, your original contributions won’t be taxed however the grants and income earned on investments will be. If you withdraw funds sooner you may need to pay back some grant received unless:
- The last time you received a grant in your account was more than 10 years ago.
- You have a life expectancy of 5 years or less.
Learn more about RDSP including eligibility requirements, taxation and more on the Canadian Revenue Agency website.