The financial well being of your loved ones is in your hands. We are here to help you get a reliable and customized financial plan for your disabled loved ones and secure the future. An RDSP allows you to save money for the future, without paying tax on the earnings. Your provincial government disability benefits will be unaffected.
Do you have a loved one with a disability?
Are you concerned about the stability and security of their financial support?
Are you looking for a registered long-term saving plan that is designed to help people with disabilities prepare for their future financially?
What is RDSP?
A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit (DTC). With an RDSP, you have nothing to lose but everything to gain.
How does RDSP work?
RDSP is a saving plan that allows contributors to save money in an account each year up to a lifetime contribution. The contributions made into the savings account are not taxed and the process of contribution can continue up until the day the beneficiary turns 59. Contributions that are withdrawn are not included as income to the beneficiary when they are paid out of an RDSP. However, the Canada disability savings grant (grant), the Canada disability savings bond (bond), investment income earned in the plan, and the proceeds from rollovers are included in the beneficiary’s income for tax purposes when they are paid out of the RDSP.
What are the conditions that can initiate transfers from RDSP accounts to another?
- The transfer must be made directly from a beneficiary’s current RDSP to a new RDSP for the same beneficiary
- A transfer can only occur in the event that both holders of the current RDSP are in agreement.
- All funds must be transferred from the current RDSP to the new RDSP
- After the transfer, the current RDSP must be terminated immediately
- If the beneficiary is 59 years of age at the time of the transfer, the issuer of the new plan should pay any daps incurred.
How does Rollover and saving work?
The government has enabled the proceeds from certain registered savings like RESP, RRSPs, and RRIFs plans to be transferred tax-free directly into an RDSP provided they belong to the same beneficiary. It also allows certain lump-sum amounts to be paid from registered pension plans and into the accounts provided the plan holders are the beneficiary’s deceased parents or grandparents.
Who is eligible as a beneficiary of RDSP?
You can designate an individual as beneficiary if they are eligible for Disability Tax Credit, have valid social insurance number, are Canadian resident at the time of the application, and are below the age of 60 years.
A beneficiary can only have one RDSP at any given time, although this RDSP can have several plan holders throughout its existence and more than one plan holder at any given time.
Benefits of RDSP/ Why RDSP?
RDSP is a saving plan that allows contributors to save with the benefit of no taxation. Depending on your family income, the federal government may contribute as much as $90,000 to YOUR account. Some of the benefits that come with RDSP savings include the following:
- It gives you the freedom of choosing where to invest the money because the plan is offered all over Canada by the major Canadian banks and some Credit Unions.
- The government makes a major contribution to the savings. The Canada savings grant allows the government to match every dollar saved with up to $3.
- The government can also help those who have low income but have the need to save by investing $1000 each year for 20 years through the Canada Disability Savings Bond.
- You can have money in an RDSP and still get your government benefits.
- With an RDSP account, anyone with permission can contribute to it regardless of whether they are family, friends, neighbors, charities, foundations, and organizations.
- You get the freedom to spend the RDSP withdrawals the way you want to and when you want to.
- By the time you close an RDSP account, all the contributions and investment gained are yours.
- RDSP is a reliable long-term financial security strategy with guaranteed growth.
Who can open an RDSP?
If the beneficiary is under the age of majority, a qualifying person can open an RDSP for the beneficiary and become a holder if that person is a legal parent, guardian or public department.
If the beneficiary has reached the age of majority and is contractually competent to enter into a plan the beneficiary can open an RDSP for themselves.
The ability of a “qualifying family member” that can be a spouse, partner, or parent to open a plan under these rules stipulated. You need to talk to your advisor to explain the rules that govern the qualification of being an account holder in this regard as a QFM has to meet certain qualifications.
A qualifying person, who is legally authorized to act for the beneficiary, can open an RDSP for the individual and become a holder.
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FAQs
Who can contribute to an RDSP?
Anyone can make contributions to the RDSP provided they have the permission of the plan holder. This gives the beneficiary the chance to be helped financially by anyone who wants.
How do you open an RDSP?
To open an RDSP, a qualified person must contact a participating issuer, the financial institution that offers RDSPs. The plan holder is the person who opens the RDSP and makes or authorizes contributions on behalf of the beneficiary. As long as conditions are met, there can be more than one plan holder at any time
Is it possible to change the holder of an RDSP?
When the legal parents(s) of a beneficiary open an account on their behalf, they may continue as the holder(s) of the plan after the beneficiary reaches the age of majority. When the beneficiary reaches the age of majority and is contractually competent to enter into a plan, the beneficiary can be added to the RDSP as a joint holder.
The RDSP can only allow the addition of the beneficiary as a holder once they have met all the qualifications. In case of any other person being able to operate the plan other than the beneficiaries’ legal parent(s) or the beneficiary himself/herself, that person must be removed once the beneficiary reaches age.
Any other holder that is not the beneficiary doesn’t have to be a Canadian citizen, but they must possess a valid SIN number to open the plan. In the event that any other qualifying body or individual doesn’t meet all the requirements, they must be removed as holders. Should this happen, the following can be added as successors:
- The beneficiary who has reached the majority age and is contractually competent.
- The beneficiary’s Estate.
- Any other person or body who is already a holder.
- A legal parent of the beneficiary and was previously a holder of the plan.
What will happen should the beneficiary die?
In the event that the beneficiary dies, the RDSP must be closed and all amounts remaining in the plan be paid out to the beneficiary’s estate by December 31st of the following year. The remaining after all the requirements have been paid off will be paid to the estate. In the event that a DAP was previously, the taxable portion of the DAP is to be included in the income of the beneficiary’s estate in the tax year in which the payment is made.
What is the contribution limit for RDSPs?
RDSP is not restrictive when it comes to the amount that can be contributed to a particular beneficiary in a given year. On the other hand, the overall lifetime contributions for a beneficiary should be $200,000 which is subject to the reductions by previous contributions and rollovers. The contributions can be made throughout the period between the start of the account to the end of the year in which the beneficiary turns 59 years.
Who can set up an RDSP?
Any person can open an RDSP only if they fulfill certain conditions that include being under the age of 60, being a resident of Canada, having a valid social insurance number, and meeting the eligibility criteria for the disability tax credit (DTC).
What can I invest in with my RDSP proceeds?
Major Banks in Canada offer RDSP, which makes it easier for qualified disabled Canadians to apply. The only shortcoming that comes with this process is the limited ways of investments as these institutions only offer in-house GICs or mutual funds. However, other institutions and agencies have the ability to offer the plan holders any type of investments that may include individual stocks, ETFs, index mutual funds or low-cost actively managed mutual funds.
Does the RDSP impact government benefits?
It should be a general knowledge to everyone that RDSP is regarded as an asset regardless of the territory or the province. This means that the RDSP proceeds do not affect eligibility for provincial benefits. When contributions are made to the RDSP, they will have no impacts on any federal benefits, such as the Canada Child Tax Benefit, Old Age Security or Employment Insurance.
But it is advisable to check with your home territory or province because some provinces or territories could have their income-tested benefits affected. This is because RDSP income withdrawals have a certain percentage of it exempted. Check with your provincial government to determine how you might be impacted.