What is a registered disability savings plan and how does it work?

Dave Schurman of the FirstOntario Credit Union joined Bob Cowan on Morning Live to answer viewer’s questions about the registered disability savings plan (RDSP).

“Can you describe what a RDSP is and how does it work?”

A RDSP is a savings plan intended to help parents and others save for the long term financial stability of a person.

Similarly to a registered education savings plan, contributions are made to an account under the name of a beneficiary, who would be the person with a disability and the owner of the funds. The federal government also pays into the RDSP. 

There is no annual limit on amounts that can be contributed to a RDSP. However, the total lifetime limit for a particular beneficiary is $200,000.

In order to qualify for a RDSP, the beneficiary must be eligible for the disability tax credit (DTC) and be under the age of 60 when the plan is opened.

“Can relatives contribute to a person’s RDSP and is the contribution tax deductible? What percentage is the government grant?”

Anyone can make a contribution to a RDSP, as long as the account holder provides written consent for the contributor to do so.

Contributions to a RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59.

The government will pay matching grants of up to 300 per cent, depending on the beneficiary’s family income and contribution. The maximum grant amount is $3,500 per year, with a limit of $70,000 over your lifetime.

“I’m 55 with a RDSP. Why do contributions from the government stop at age 49 and why can’t I utilize any of my money now?”

Schurman said contributions can be made until Dec. 31 of the year the beneficiary turns 59.

However, the government grant portion ends on Dec. 31 of the year the beneficiary turns 49.

When it comes to RDSP withdrawals, Schurman recommended consulting your financial advisor to discuss your specific plan and needs.

“Withdrawals can be made before 60 but in most cases, you’ll have to repay grants and bonds,” he said. “Wait until 60 and then you don’t need to worry about repaying. Remember, a plan is designed to provide income like a pension plan and the government doesn’t want the money to be depleted.”

“Is a RRIF able to roll directly into a disabled adult child’s RRSP or RRIF of their own without paying income tax on it when both parents have passed away? This is something I have been wondering about for our disabled daughter.”

Schurman said a registered retirement income fund (RRIF) can be rolled over tax-free into another RRIF or RDSP.

If you have a question for Schurman, email him at FinanceFriday@FirstOntario.com or message him on Twitter at @Finance_Friday. If your question or topic is selected to be covered on air, you will win a gift card from a local business in your community.