This entry was submitted by the Royal Bank of Canada

The Registered Disability Savings Plan (RDSP) was introduced by the government of Canada to help families and people with disabilities save for their long-term financial security.

The benefits of saving in an RDSP

Contributions to an RDSP are not tax-deductible, but they grow within the plan on a tax-deferred basis. In addition, contributions may be eligible for the Canada Disability Savings Grant (the grant) and the plan may be eligible for the Canada Disability Savings Bond (the bond). The grant provides matching contributions; no contributions are required for lower income individuals/families to receive the bond. Together, they could add up to $90,000 to your RDSP.

There is a lifetime contribution limit of $200,000 per beneficiary and no annual contribution limit.

Note that withdrawals trigger the repayment of any grant or bond received during the previous 10 years.

Making the most of your RDSP

Here are some age-related strategies that may help you maximize the value of your plan, depending on your circumstances.

When the beneficiary is a young child:

  • Make contributions that attract the grant as early as possible, to maximize tax-deferred growth and to minimize the effect of the grant “clawback” — if a withdrawal is made, any grant payments received in the previous 10 years must be paid back.
  • Try to make an annual contribution large enough to attract the maximum matching grant contributions. The earlier you start, the better chance you will have of reaching the maximum grant amount of $70,000.
  • The tax-deferred status of contributions makes the RDSP an ideal way to invest in long-term solutions like a growth oriented mutual fund.

When the beneficiary is a young adult:

  • Try to contribute every year because the grant and bond cannot be received following the year the beneficiary turns age 49.  Even if there is no intention to contribute, the bond can be maximized simply by opening the plan early enough.
  • Upon reaching the age of majority, a beneficiary who is capable of managing his or her own finances can become the holder of his or her own plan. This isn’t compulsory, however. If you are the parent and have been the holder while the beneficiary was a minor, you can continue as holder.
  • At this stage, an investment solution that strikes the right balance between growth and safety may make sense depending on when withdrawals are planned.

When the beneficiary is a mature adult (40+):

  • Contributions to an RDSP do not qualify for grant contributions following the year the beneficiary turns 49. In addition, plans are not eligible for the bond after this time.  But beneficiaries can still benefit from tax-deferred growth by contributing up until the year they turn age 59.
  • Lifetime Disability Assistance Payments (LDAPs ***See explanation below) can begin at any age but must begin by the end of the year in which the beneficiary turns age 60. Consider waiting at least 10 years after the final grant and bond have been received into the plan before requesting LDAPs; otherwise, the grant and bond payments received in the previous 10 years will have to be returned to the government.
  • The portion of the LDAP consisting of grant, bond and investment income is taxable at the beneficiary’s marginal rate, which may influence the decision to begin payments. For example, if the beneficiary’s marginal tax rate is likely to decrease at retirement age, it may be advantageous to delay LDAPs until that time.
  • More conservative investment options, including those that generate regular tax-efficient income while providing some growth to offset inflation, should be considered as payments from the RDSP must begin.

How RBC can help:

RBC Royal Bank® is the preferred RDSP provider for PLAN. RBC has a wide range of RDSP-eligible investments and charges no RDSP withdrawal or annual administration fees.

To learn more about RDSPs or to arrange to open a plan and get advice about investment options that are the best fit for you, call 1-800-463-3863, you can also visit the RBC RDSP website or book an appointment with a knowledgeable RBC advisor

***Lifetime Disability Assistance Payments:  Lifetime Disability Assistance Payments (LDAPs) are regularly scheduled periodic payments that can begin at any time and must continue for the life of the beneficiary. They must begin no later than the end of the year in which the beneficiary turns age 60.