If you are disabled, have a social insurance number, reside in Canada and are under age 60, you qualify to open a Registered Disability Savings Plan (RDSP). You can take advantage of generous government assistance.
If you are under the age of 49, have an RDSP and make less than $24,863 a year, you qualify for an automatic $1,000 of government assistance a year. You will see the Canada Disability Savings Bond (CDSB) deposited to your RDSP account, whether you make any of your own contributions or not. Simply by opening an RDSP account, the government will give you the $1,000 a year for up to 20 years. That’s free money that most people don’t know about.
Even if you have missed out on receiving those $1,000-per-year CDSB grants, available since 2008, you are allowed to claim them retroactively. Note that, because the grant depends on your income level, you would need to have filed your income tax returns for 2006 onward to obtain all six years of grants missed from 2008 to 2013.
What if you actually do have some cash to deposit into your RDSP? If you contribute $1,500 a year to your RDSP, the federal government adds a matching Canada Disability Savings Grant (CDSG) of up to $3,500 each year. In other words, your deposit can be more than tripled.
Disability Tax Credit
To qualify to have an RDSP you need to be eligible for the Disability Tax Credit (DTC). Take form T2201 to your doctor. Mail the completed form to Canada Revenue Agency. Expect to wait several months for the reply letter.
What if you are a Registered Education Savings Plan (RESP) beneficiary who has been unable to pursue postsecondary education due to disability? It’s not possible yet, but there is a proposal to allow the RESP subscriber (parent) to transfer the accumulated investment income earned in your RESP on a tax-free rollover basis to your RDSP starting in 2014.
What if your parents have died and you have inherited money from a registered plan (including an RRSP, RRIF or pension plan)? Some inherited registered funds can be transferred tax-free into your RDSP. These special rollover contributions would not generate any government grants.
If your parents have died and left you other money, perhaps through a testamentary trust or life insurance, you can use those after-tax dollars to help you make ongoing $1,500-per-year RDSP deposits. You can use your inheritance to continue maximizing your annual CDSG grants until age 49.
OAS and GIS
As you reach age 65, you should apply for Old Age Security (OAS) which pays you up to $551 per month. At the same time, you should also apply for Guaranteed Income Supplement (GIS), which is an income-tested top-up that can give you an additional benefit of up to $747 per month. Fortunately the government will ignore RDSP withdrawals when determining your eligibility for GIS.
Do not think of your RDSP as a short-term savings account or emergency fund. An RDSP is your private nest egg to provide you with basic cash flow and help cover long term care costs in your old age.
If you take any money out of your RDSP before 10 years have passed (or die or cease to be eligible for the DTC), you are not allowed to keep
the grants that the government has paid into the plan during the 10 years preceding the withdrawal. There is a proposal to modify the formula for this “holdback amount” which should take effect in 2014.
Because RDSP rules are complex, and keep changing, it is prudent to seek the help of a financial adviser.