Top 10 Questions About RDSPs Answered for Families

If you have a loved one living with a disability, you may have heard of the Registered Disability Savings Plan (RDSP). This program is designed to help families save for the long term, while also receiving government support. But many parents and grandparents still have questions about how it works. Let’s go through the most common ones together.

What is an RDSP?

An RDSP is a savings program that helps people with disabilities and their families save for the future. The main advantage is that contributions can grow tax-free and, in many cases, the government adds extra money through grants and bonds.

Who is eligible for an RDSP?

The person opening the account (the beneficiary) must be eligible for the Disability Tax Credit (DTC), be a Canadian resident, and have a valid Social Insurance Number. There is also an age limit—contributions are allowed until the beneficiary turns 59, but government grants and bonds stop at age 49.

How much can you contribute?

There is no annual contribution limit, but the lifetime maximum is $200,000 per beneficiary. Contributions are not tax-deductible, but they can grow tax-deferred.

What government support is available?

Two main programs add to the RDSP:

• Canada Disability Savings Grant: The government can match contributions up to 300%, depending on family income and amount contributed.
• Canada Disability Savings Bond: Families with lower incomes may qualify for bonds up to $1,000 per year without needing to contribute.

Can anyone contribute to an RDSP?

Yes, anyone can contribute with the written permission of the plan holder. This means parents, grandparents, and even friends can help build savings for the beneficiary.

What happens when money is withdrawn?

Withdrawals are made up of contributions, grants, bonds, and investment growth. The contributions come out tax-free, but the grants, bonds, and growth are taxed as income for the beneficiary, who usually pays little to no tax due to lower income levels.

Are there penalties for taking money out early?

Yes. If you withdraw within 10 years of receiving government grants or bonds, you may have to repay some or all of them. This is known as the 10-year rule.

What happens if the beneficiary passes away?

The plan is closed, and the money goes to the beneficiary’s estate. Government grants and bonds received in the last 10 years must be repaid.

What if the beneficiary’s situation changes?

If the beneficiary becomes ineligible for the Disability Tax Credit, the RDSP can stay open for a certain period, but no new contributions or government support can be added. Withdrawals may be required.

When should you open an RDSP?

The sooner the better. Starting early allows for more time to receive government support and benefit from compound growth. Even small contributions can add up significantly with grants and bonds.

RDSPs are a powerful way to provide long-term security for a loved one living with a disability. They are flexible, supported by the government, and designed to grow savings in a sustainable way.

Taking the time to understand how RDSPs work can give families peace of mind. Whether you are a parent setting things up or a grandparent wanting to contribute, knowing the answers to these common questions can help you make informed decisions.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. Always consult a qualified professional regarding your specific situation. We are not responsible for any actions taken based on this content.