What are Registered Disability Savings Plans (RDSPs)?
An RDSP is a registered account, introduced by the federal government in 2008 and in large part due to the efforts of the Planned Lifetime Advocacy Network (PLAN). Like the registered education savings plan (RESP) (see FAQ #311), it is a flexible investment account with contribution limits that allows an individual to earn tax-deferred investment income and capital gains in the account.
RDSPs are also eligible for government funding through the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB).
There are three parties to an RDSP; a legal parent, guardian or other entity that is legally authorized to act for the beneficiary or the beneficiary (owner), a plan provider and a beneficiary. There can be multiple subscribers, promoters and beneficiaries.
Contributions to an RDSP are not tax-deductible. There are no annual contribution limits. However, the lifetime contribution limit for total RDSP contributions for a single beneficiary is $200,000. Government funding is not included as part of this limit. A beneficiary may only have one RDSP active at any point in time.
Disability planning can be complex for families, often requiring you to navigate a maze of rules around taxation, government funding, disability subsidies, private funding and more. For example, disability benefits offered by British Columbia require that you are below a certain income and asset threshold. Other benefits may only have an income threshold or an asset threshold. Different benefits may have different definitions and exceptions for assets, particularly assets held in a trust or RDSP.
In general, most disability funding sources will recognize RDSPs as an exempt asset for the purposes of an “asset” test.
A couple of interesting points:
- You can transfer amounts from an RESP to an RDSP.
- Unused grant and bond entitlements can be carried forward for a maximum of 10 years.
- A plan must be owned/opened by the disabled individual if they are able to sign a contract (not a minor or not legally competent). However, if a parent or guardian opens the account while they are unable to sign a contract, they can be “grandfathered” on the account and remain even if the beneficiary is able to sign a contract in the future.
Please watch for our post on savings plans in the United States in future issues.
If you have questions about Canadian registered plans or want to know if any of these plans are appropriate for your needs, please contact us at 604-888-4200 or Johannes Weinmar, Financial Advisor with Raymond James at johannes [dot] weinmar [at] raymondjames [dot] ca.