With almost 1.5 million Canadians eligible to open an RDSP, that’s around a million people missing out on an extremely beneficial savings plan that can help their money grow much faster and provide even greater financial security. Investments within the RDSP grow in a tax-deferred way, meaning that no tax is charged on earnings within the account (from interest, dividends or capital gains) while the money stays within it.
RDSP savings can be boosted even further by government contributions from the Disability Savings Grant and the Canada Disability Savings Bond. This article aims to shed light on this little-known savings plan by explaining how it works, who can qualify for an RDSP in Canada, the rules for contributing to and withdrawing from an RDSP, the kind of investments that can be held in it, and whether an RDSP is a good choice for you or your loved one.
How does an RDSP work?
The Registered Disability Savings Plan works similarly to an RESP or a TFSA: the account must be registered with the federal government (through your financial institution) and all earnings within the account grow tax free as long as they remain in the account.
While anyone can contribute to an RDSP in Canada, the person benefitting from the account (the beneficiary) must have been approved for and received the disability tax credit. The disability tax credit is a non-refundable tax credit, which is available to people with “a severe and prolonged impairment” (or the family member who supports them) in one of several categories, as classified by the Government of Canada (see below). The disability tax credit can considerably reduce the amount of tax that the person with the disability or their supporting family member pays.
Once you or your dependent family member qualify for the disability tax credit, you can open an RDSP. The key advantages of opening an RDSP are the tax-deferred growth of savings and investments held in the plan (this can help your money grow much faster, thanks to increased compound returns) and government contributions in the form of the Canada Disability Savings Grant and the Canada Disability Savings Bond.
How the Canada Disability Savings Grant and Bond work
The federal government pays a matching amount of 100%, 200% or 300% into an RDSP through the Canada Disability Savings Grant. The amount paid will depend on how much is contributed in a given year and the beneficiary’s family income.
The RDSP grant pays a maximum of $3,500 in any one year and has a lifetime contribution of $70,000. This can be very helpful in securing the financial future of anyone with a disability.
The matching percentage of the Canada Disability Savings Grant will depend on the beneficiary’s adjusted family net income. For 2023, the income threshold was $106,717 or less. Here’s how the RDSP grant works:
| Beneficiary with adjusted family net income of $106,717 or less: | |
| Matching grant | Maximum annual grant |
| Receives $3 for every $1 contributed of the first $500 | $1,500 |
| Receives $2 for every $1 contributed of the next $1,000 | $2,000 |
| Beneficiary with adjusted family net income over $106,717: | |
| Matching grant | Maximum annual grant |
| Receives $1 for every $1 contributed of the first $1,000 | $1,000 |
The Canada Disability Savings Bond is an amount paid directly into the RDSP of beneficiaries from low-income households. The bond is worth up to $1,000 per year; no contributions are needed to receive the bond, and the lifetime limit of the bond is $20,000.
If the beneficiary earns $34,863 or less, they’ll receive a bond of $1,000 annually in their RDSP. If they earn between $34,863 and $53,359, they’ll receive a portion of the $1,000 bond as per the Canada Disability Savings Act (these amounts are for 2023). If they earn over $53,359, they’ll receive no bond at all.
If the beneficiary is under 18, their bonds are calculated using their parents’ or guardians’ combined income. Once the beneficiary reaches 18, they need to file personal tax returns to continue receiving the RDSP bond. Given that no contributions are needed to receive the Canada Disability Savings Bond, it can be hugely beneficial for disabled people on a low income.
Who qualifies for an RDSP?
In general, the four criteria for qualifying for an RDSP are:
- A valid social insurance number.
- Being approved for the disability tax credit.
- Being a Canadian resident when the RDSP is set up and contributions are made.
- Being under 60 when the plan is opened (contributions can’t be made after the end of the year the beneficiary turns 59).
If the RDSP beneficiary is under 18 when the plan is opened, the holder of the RDSP would need to be one of the following:
- The beneficiary’s legal parent.
- A person legally authorized to act for the beneficiary.
- A public institution legally authorized to act for the beneficiary.
The most difficult aspect when qualifying for an RDSP is being approved for the disability tax credit. The beneficiary needs to have their doctor certify that they have a “severe and prolonged impairment” in one of several categories, have significant limitations in two or more categories or need therapy to support a vital function. The categories are impairments/limitations in:
- Walking.
- Mental functions.
- Dressing.
- Eating.
- Bowel/bladder functions.
- Hearing.
- Speaking.
- Vision.
- Life-sustaining therapy.
To apply for the disability tax credit, for yourself or a dependent, you can use the Government of Canada’s application form.
RDSP contribution limits
There is no annual RDSP contribution limit as such. The lifetime RDSP contribution limit is $200,000, and all of that could, in theory, be contributed in one year. However, given that matching from the Canada Disability Savings Grant happens annually and to a limit of $3,500, you would miss out on a potentially large amount in the grant if you made all your contributions in one year.
RDSP contributions can be made up until December 31 of the year in which the beneficiary turns 59; the following year, RDSP withdrawals from the plan start, and no further contributions can be made.
RDSP withdrawal rules
Certain portions of RDSP withdrawals are taxable. Contributions that are made to the plan are not taxable when withdrawn. However, any RDSP withdrawals that are from the Canada Disability Savings Grant, Canada Disability Savings Bond and investment earnings (interest, dividends and capital gains) are classed as taxable income for the beneficiary.
RDSP withdrawals begin in the year the beneficiary turns 60. Known as annual withdrawals or lifetime disability assistance payments (LDAPs), these RDSP payments continue for the beneficiary’s lifetime.
RDSP investment options
As with other registered accounts, such as an RESP and a TFSA, you don’t have to hold just cash in an RDSP. Savings typically grow faster when you have a diversified portfolio of investments, rather than just a cash savings account. Interest, dividend payments (when companies pay their shareholders) and capital gains (when your investments grow in value) can all help your savings grow faster.
These are the most common types of investments allowed to be held in an RDSP:
- Guaranteed investment certificates.
- Assets listed on designated stock exchanges, including:
- Shares of publicly listed companies.
- Exchange-traded funds (ETFS).
- Real estate investment trusts (REITs).
- Mutual funds and segregated funds.
- Canada savings bonds and provincial savings bonds.
- Corporate bonds
RDSP frequently asked questions
Can I open an RDSP without qualifying for the disability tax credit?
No, the beneficiary must have qualified for the disability tax credit before opening an RDSP. You need to have your doctor fill out form T2201 Disability Tax Credit Certificate and then send it to the CRA. Find out more about the disability tax credit here.
Are RDSP contributions tax deductible?
No, there are no immediate tax benefits from contributing to an RDSP (as there are with an RRSP, for example), however, the investments grow tax free while they remain in the plan (some portions of RDSP savings are classed as taxable income when withdrawn).
What’s the difference between an RDSP account holder and an RDSP beneficiary?
An RDSP account holder is the person who opens the account and makes contributions to it. An RDSP beneficiary is the person who will benefit from the money saved. They can be the same person (if the beneficiary is aged 18-plus and mentally capable), but they are often two separate people.
What’s the minimum and maximum age for opening an RDSP?
RDSPs can be opened for beneficiaries from any age until the end of the year when they turn 59. However, government RDSP grant contributions end at age 49.
What’s the RDSP contribution limit?
The lifetime RDSP contribution limit is $200,000, but there is no annual limit.
Who can make an RDSP contribution?
Anyone can make an RDSP contribution, as long as they have written consent from the RDSP account holder.
Can I have more than one RDSP?
No, a beneficiary can only have one RDSP at a time, though their RDSP can be transferred between financial institutions.
How to open an RDSP account
An IG Wealth Management Advisor can help you open a Registered Disability Savings Plan for yourself or your dependent. They’ll be able to recommend the most impactful mix of investments to include within the RDSP, according to the timeframe involved and your risk tolerance level, and help you maximize contributions from the Canada Disability Savings Grant.
They’ll also ensure that any contributions to the RDSP fit in with your overall financial plan, in the most efficient way possible. Schedule an appointment with your IG Advisor today to find out if you or your family member might benefit from opening an RDSP. If you don’t have an IG Advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant.
Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial Services Firm). Insurance license sponsored by The Canada Life Assurance Company (outside of Québec).
The Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) are provided by the Government of Canada. Eligibility depends on family income levels. Speak to an IG Advisor about special RDSP rules; any redemption may require repayment of the CDSG and CDSB. GICs issued by Investors Group Trust Co Ltd., and/or other non-affiliated GIC issuers.
