Registered Disability Savings Plans: What are they and how could they help me?
Experiencing a disability can make planning for the future much more stressful. In 2008, the Government of Canada introduced the Registered Disability Savings Plan (RDSP) to help Canadians with disabilities save for retirement. An RDSP is an account you can contribute to until the end of the year you turn 59, and which typically operates as a pension fund once you’ve turned 60.
Am I eligible for a Registered Disability Savings Plans?
If you are a resident of Canada who is under the age of 60, have a valid SIN and are eligible for the disability tax credit (DTC), then you can be a beneficiary of an RDSP. If you are either the legal parent or guardian of a minor who meets the above criteria, or the spouse of a person who meets the criteria but is not contractually capable to open the account themselves, then you may open an RDSP on their behalf.
What are Canada Disability Savings Grants and Bonds?
These are programs through which the government contributes to your RSDP. With a Canada Disability Savings Grant, the government will contribute amounts to your RDSP depending on your income level and how much you contribute yourself. If your family income is under $98,040 and you make annual contributions to your RDSP, you could receive a grant of up to $3,500 per year. This maximum is based on a $1,500 annual contribution and will be a lower amount if your contributions are inferior. If your family income is over $98,040, the government will match your contribution up to $1,000 per year. The maximum lifetime grant amount you may receive for your RDSP is $70,000.
The Canada Disability Savings Bond is a government contribution which is solely based on income levels and does not require that you make contributions to your RDSP yourself. While the income thresholds may change, as of 2021, if your annual family income is under $32,028, the government will award you with a $1,000 annual bond. If your annual family income is between $32,028 and $49,020, then you are still eligible to receive some proportion of the $1,000 bond, with the exact amount to be determined. Unfortunately, individuals with annual family incomes over $49,020 are not eligible for a Canada Disability Savings Bond. The maximum lifetime bond amount for your RDSP is $20,000.
What does this mean for me?
If you are someone who has qualified for a DTC, it may be a good idea to open an RDSP to help with saving for your future. With the grant, you could earn up to $70,000 just for regularly adding to your retirement savings. While it can seem enticing to invest a large lump sum into an RDSP, it may be more beneficial to you to contribute smaller amounts on an annual basis to gain as much money as possible from the Canada Disability Savings Grant without hitting your maximum annual allowance. Even if your financial situation means regular contributions aren’t possible, with the Canadian Disability Savings Bond, you could still earn up to $20,000 towards your retirement.
For more information
If you’d like more information on RDSPs, you can consult this website or inquire with your financial institution. It is important to do further research to fully understand what RDSPs entail and any penalties you may face before you make any final decisions.