FirstOntario Credit Union’s Dave Schurman discusses how a registered disability savings plan (#RDSP) works and answers viewer questions around contributing to these plans.
Aired on February 4, 2022, on CHCH Morning Live.
0:23 What is an RDSP, and how does it work?
1:29 Can relatives contribute to an RDSP? What percentage of an RDSP is the government grant?
2:22 View question: Why do contributions from the government stop at age 49, and why can’t the funds in an RDSP be utilized before turning 60?
3:24 Can RRIFs be rolled directly into a dependent child’s RDSP?
A registered disability savings plan (#RDSP) is a tax-sheltered plan to assist Canadians with a defined disability to create savings for use in retirement. The federal government created RDSPs in 2008 to address the needs of disabled people and their families to create some future financial stability. One of the biggest concerns of parents of kids with disabilities is how they will be supported when they are gone. It works in some ways like a registered education savings plan (RESP) as contributions are made to an account in the name of the beneficiary, the owner of the funds. Investments in the fund grow tax-free, and there is a lifetime limit on contributions of $200,000. To qualify for an RDSP, the beneficiary must be eligible for the Disability Tax Credit and be under 60 when the plan is opened. Parents, relatives and others can contribute to a person’s RDSP, but unfortunately, there is no tax deduction on contributions. But like an RESP, the money grows tax-free for the beneficiary once the funds are in the plan.
Government grants for RDSPs can be complicated as the amounts are based on family income but can reach $3500 annually to a lifetime grant total of $70,000. The government also provides a $1000 annual bond to lower-income families, up to $20,000.
Contributions can be made until December 31 of the year the beneficiary turns 59. Still, government grants end on December 31 of the year the beneficiary turns 49. Unused grants can be carried forward, but contributions have to be made by age 49 to get those grants. RDSP withdrawals are complicated, and it is essential to consult with an advisor to look at your specific plan and your needs. Withdrawals can be made before the beneficiary turns 60, but in most cases, the grants and bonds would need to be paid back. Remember, the savings plan is designed to provide income like a pension plan.
To learn more about RDSPs, visit https://www.firstontario.com/personal....
At FirstOntario Credit Union, we are committed to #financialliteracy. We know that strong financial literacy is key when making confident, informed decisions about money, including when you should spend it, why you should save it and how to make it grow. Our CSO, Dave Schurman, visits CHCH Morning Live every other week for a live Finance Friday segment. He talks about different ways to make the most out of your money and addresses viewer questions. If you would like to submit your questions to Dave, send them by email at [email protected] or via Twitter at / finance_friday .
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