Canada has a number of grant opportunities for Canadian residents, one of which is the RDSP grant. RDSP stands for registered disability savings plan and is meant to be a long-term savings vehicle for disabled Canadians. The RDSP grant is a handy program offered by the Government of Canada to help eligible individuals save. Here’s what you need to know about the RDSP grant.
What is the RDSP grant?
So, what is a registered disability savings plan? An RDSP is a Canada-wide government program designed to help account holders save and be better prepared financially for their future. The RDSP grant program helps the family members of an individual with disabilities by paying matching grants of 100%, 200%, or even 300% depending on the beneficiary’s adjusted family net income.
How much can I get from the RDSP grant?
The amount you will receive from the RDSP grant will depend on the adjusted family net income.
If the net family income of the beneficiary is less than $97,069 then the grant will be $3 for every $1 contributed on the first $500 allowing you an annual maximum of $1,500 in RDSP grants. For anything over that $500, the RDSP grant will be adjusted to $2 for every $1 contributed up to an annual maximum of $2,000 in RDSP grants.
If the net family income is more than $97,069 OR if there is no income tax return, then the RDSP grant is $1 for every $1 contributed up to a maximum of $1,000.
The maximum lifetime RDSP grant amount, no matter the net family income, is $70,000.
Note that the net family income is based on the income of the beneficiary’s parents up until the year in which the beneficiary reaches the age of 18. From that point on, the net family income is that of the beneficiary and their spouse or common-law partner. If the beneficiary is under the care of an institution/department/agency for a minimum of 1 month per year, the adjusted net family income is based on the allowance payable to the institution/department/agency.
Is there an RDSP contribution limit?
There are no annual limits on how much can be contributed to an RDSP for a beneficiary but there is a lifetime personal contribution limit of $200,000. As mentioned above, there is a limit of how much you can get from the RDSP grant (both annual and lifetime). An RDSP can also hold $20,000 in bonds on top of the personal contributions and RDSP grant. Then, of course, any interest made within the account.
Note that any growth because of interest in your RDSP is tax-deferred but contributions are not tax-deductible. Contributions are only allowed to be made to an RDSP until the beneficiary turns 59.
How do I qualify for the RDSP grant?
In order to designate an individual as the beneficiary for an RDSP, the intended beneficiary needs to meet the following requirements:
- Is considered eligible for the disability tax credit (DTC)
- Has a valid Social Insurance Number (SIN)
- Is a resident in Canada
- Is under the age of 60
If these requirements are met the beneficiary will meet the requirements to qualify for the RDSP grant as long as they have filed income taxes for the previous two years.
How to open an RDSP account
If the beneficiary is under the age of majority, an RDSP can be opened on their behalf by an individual who meets one of the following criteria
- The legal parent of the beneficiary
- A guardian, tutor, or curator of the beneficiary. Or another individual who is legally authorized to act for the beneficiary
- A public department, agency, or institution that is legally authorized to act for the beneficiary
If the beneficiary is over the age of majority and is contractually competent to enter into a plan, then the beneficiary can open an RDSP for themselves.
If the beneficiary has reached the age of majority but their contractual competency to enter into a plan is in doubt, then a qualifying family member can open a plan. A qualifying family member includes a parent or spouse a common-law partner who lives with the beneficiary.
The individual who opens the RDSP for the beneficiary is called the plan holder. The plan holder can open an RDSP at any participating financial institution. Once the RDSP has been opened, the plan holder is responsible for making or authorizing contributions to the RDSP. There can be several plan holders on one account, however, a beneficiary can only have one RDSP account. Anyone is allowed to contribute to the RDSP as long as they have written permission from a plan holder.
How does an RDSP withdrawal work?
RDSP withdrawals are called Disability Assistance Payments or DAPs. These can be made to the beneficiary at any time and for any purpose. Once the beneficiary turns 60, contributions will no longer be allowed to the account. At this point, the beneficiary will need to start receiving regular payments which are called Lifetime Disability Assistance Payments or LDAPs. These must be paid at least once a year and will continue until either the beneficiary dies or the plan is terminated.
When taking money from your RDSP you need to be mindful of RDSP withdrawal rules. This can be tricky, so it’s worth having a financial expert take a look and help you manage your RDSP account. With that being said, here’s what you need to be aware of.
If you receive a government grant or bond, there is a holdback period of 10 years on that money. This means that if you withdraw some of the money from your RDSP grant before that 10-year period is up, you will be penalized and have to pay back $3 for every $1 withdrawn.
If the government contributed more to your RDSP than you/family/or friends did, then you will be limited in how much you can withdraw each year.
Again, be mindful of contribution limits as well. If you contribute $150,000 but then withdraw $50,000 you won’t get that room back. You will only be able to contribute an extra $50,000 to reach that $200,000 maximum.
For more information on the RDSP grant visit the official Government of Canada website here.