Hello readers! This week, I'll highlight key areas of the Registered Disability Savings Plan (RDSP). I won't be going in-depth because very few Canadians qualify for this account but I'll cover the important areas and provide links for those who want to know more.
How Does It Work?
This registered account isn't as popular as the RRSP or TFSA. It doesn't get enough coverage for a good reason. Not just anyone can open an RDSP. Currently, you can only open an account if you have a disability and qualify for the Disability Tax Credits. Once approved, you will be eligible for money from the government from both the Canada Disability Savings Grant (CDSG) & Canada Disability Savings Bond (CDSB) based on your family income and contributions. However, starting in 2021, the requirement to qualify for the Disability Tax Credits in order to keep your RDSP account open will be removed. This will allow people to continue to keep their RSDP open without a continuing requirement to prove that they have a disability.Another key point to know is anyone can contribute to your RDSP as long as there is written permission from the account holder. This is different from other registered accounts as only the account holder may contribute to their accounts with the exception of spousal RRSPs.
CDSG
With the CDSG, the maximum grant you can receive in a single year is $3,500 and $70,000 over your lifetime. Age 49 is the maximum before no more grants are received. The amount of grant you receive is based on family income. The more you make, the less you receive.*Numbers may change in future years but are current as of 2020*
- Family Income of $93,208 or less :
- On the first $500 contribution—$3 grant for every 1 dollar contributed, up to $1,500 a year
- On the next $1,000 contribution—$2 grant for every 1 dollar contributed, up to $2,000 a year
- Family Income of more than $93,208:
- On the first $1,000 contribution—$1 grant for every 1 dollar contributed, up to $1,000 a year
CDSB
With the CDSB, you qualify for it if you are considered low-income. There is no need for any contribution. The maximum you may receive is $1,000 a year with a lifetime maximum of $20,000. The cut-off is also age 49 and the grant is also based on family income. Below is the grant received based on family income:- Earnings of $30,450 or less: $1,000
- Earnings between $30,450 and $46,605: a portion based on a formula
- Earnings of over $46,605: $0
Withdrawing
At the end of the year you turn 60, your RDSP becomes like a RRIF and you begin receiving payments from it. Your contribution towards the RDSP over the years will not be taxed. However, the grants and interest earned from the funds will be taxed. It's also important to know that you may withdraw sooner however, there is a penalty if you withdraw money within 10 years of receiving any grants or bonds.
These are the key areas to understand with a RDSP. Here's a link to read more on topics I didn't cover like exceptions and other not well-known rules and such.
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