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Understanding RDSP Accounts: The Basics of RDSP’s

by | Mar 14, 2023 | Financial Planning | 0 comments

This is a three-part series in which we review RDSP Accounts (or Registered Disability Savings Plans). Today we are going to discuss the basics of RDSPs.

So, who are Registered Disability Savings Plans for? They are designed for people who receive the disability tax credit, and an RDSP can be opened when you are eligible for the disability tax credit. It can be opened either for yourself if you are the holder and beneficiary and are age 18 or older or it can be opened by a parent or guardian of a beneficiary who is under the age of 18.

An RDSP is designed for long-term savings to provide financial security to individuals who qualify for the disability tax credit.

One of the best features of the Registered Disability Savings Plan is that it is eligible for really significant grants and bonds from the government.

If an individual is able to make a contribution of $1,500 – depending on family income, there can be grants of up to $3,500 or 300% of the contribution that has been made.

Bonds can also be paid into an RDSP account – they are not based on contributions, but they are based on a family income that is quite a bit lower than that of grants.

The amount of income that grants and bonds are eligible based on changes every year, so consult your Financial Planner for the current year income amounts.

Grants and bonds can be earned up to the age of 49. If an individual was eligible for the disability tax credit, but perhaps had not applied or was not aware that the RDSP was available, you can actually make contributions and earn back grants from previous years of eligibility that have not been earned yet – and you can go back up to 10 years.

In a circumstance where you are catching up on grants that you were eligible for but have not claimed, you can contribute up to $4,500 and receive grants of up to $10,500. Bonds will be paid as well on years where one was eligible, but not earning bonds; and bonds do not require a contribution, so simply opening an RDSP while eligible is an effective way to receive some money from the government.

There are up to $70,000 of grants that are available for a lifetime as well as $20,000 of bonds that are available for a lifetime. An individual can contribute up to $200,000 to an RDSP in their name.

Withdrawals can be made from an RDSP at any time, but it is best to wait 10 years so that grants and bonds are not clawed back proportionately – we will discuss this concept in more depth in part two of this series.

RDSPs can be opened with any major financial institution – we can open them with our Custodians as well. Grants and bonds are paid into the RDSP shortly after contributions are made. Once we have opened the account, it is simply a matter of submitting the application to the government body – your Financial Planner and Portfolio Management team will assist with this process.

RDSP accounts are an effective way to save for your loved one’s financial security and future. We will review some of the finer details of RDSP accounts in part two of this series.

If you have questions or would like to discuss opening an RDSP account, please reach out to us.