How RDSPs work

The Registered Disability Savings PlanRegistered Disability Savings Plan A savings plan that allows people with disabilities and their families to save for the future. Government grants add to your savings and your investments grow tax-free.+ read full definition (RDSPRDSP See Registered Disability Savings Plan.+ read full definition) helps Canadians with disabilities and their families save for the future. For a person who qualifies for the Disability Tax Credit, an RDSP can help provide long-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition financial security.

The beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition of the RDSP can continue to receive federal and provincial disability benefits.

Opening an RDSP

• An RDSP can be opened by the person living with a disability or a family member or friend.
• The beneficiary is the person living with a disability who will receive the money in the future.
• The plan holder is the person who opens and manages the RDSP. The beneficiary can also be the plan holder.
• An RDSP can hold savings or investments, such as GICs or mutual funds.

Contributing to an RDSP

• There is no annual limit on contributions but the lifetime contributionContribution Money that you put into a savings or investment plan.+ read full definition limit for a beneficiary is $200,000.
• Contributions can be made to the plan until the beneficiary turns 59.
• Contributions are not taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition deductible, but your savings grow tax free. There is no tax on the investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition, as long as they stay in the plan.
• Until age 49, the beneficiary may be eligible for government contributions to the RDSP under the Canada Disability Savings GrantCanada disability savings grant The federal government provides matching RDSP contributions of 1x, 2x or 3x – up to $3,500 annually – on contributions made to an RDSP. The Grant amount depends on annual contributions and family income and is paid until the end of the year the beneficiary turns 49, with a $70,000 lifetime limit for a beneficiary.+ read full definition (CDSG), and Canada Disability Savings BondCanada disability savings bond The federal government makes contributions to an RDSP. To be eligible for bonds, net family income has to be below a certain level. You do not need to make any contributions to your RDSP to receive the Bond. The maximum bond per year is $1,000, until the end of the year the beneficiary turns 49,…+ read full definition (CDSB).
• The beneficiary must start taking regular payments from the plan by age 60.

Reasons to close an RDSP

There are a few reasons to close an RDSP, most commonly:

1. The beneficiary is no longer eligible for the Disability Tax CreditTax credit The amount you can deduct from your income when you file your taxes. This lowers the tax that you owe.+ read full definition, for example if they have recovered from their disability.
2. The beneficiary has died. In this case the plan must close by the end of the calendar year after their death.

Before the financial institution closes the RDSP, they must repay the government any assistance holdback amount that is left in the plan. The assistance holdback amount is the total amount of CDSG and CDSB paid into the RDSP within the previous 10 years.

Learn more about how RDSPs work, including how to set up a plan, how to put in or take out money, and how to transfer or close the plan.

3 key points

1. Savings grow tax free in the plan
2. The government makes contributions
3. You can still get disability benefits