Most of us are aware of Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) as they are highly promoted by our financial institutions. There is a lesser known registered plan which can be of great assitance in estate plans for families in Medicine Hat who have a special needs child, whether a minor child or an adult child.

What is an RDSP?

A RDSP is a savings program set up by the Government of Canada to help Canadians with disabilities save for the future. This program can be used to help families plan for the financial security of a person who is eligible for the disability tax credit (DTC). The special needs child is eligible for the DTC if a medical practitioner certifies on the required government form, that the special needs person has a severe and prolonged physical or mental impairment.

How Does an RDSP Work?

An RDSP is opened by a qualifying person through a financial institution selling RDSPs. The plan holder is the person who opens the RDSP and makes or authorizes contributions to the plan on behalf of the special needs beneficiary. Anyone can make contributions to the RDSP with written permission of the plan holder.

When opening the plan you specify the special needs child beneficiary. The beneficiary must be a resident of Canada under 60 years of age, have a valid social insurance number, and be eligible for the DTC. A special needs beneficiary can only have 1 plan.

Contributions can be made to the plan until the end of the year in which the special needs beneficiary turns 59.  There is no limit on the amount which can be annually contributed to the RDSP. Canada Revenue Agency however,  sets a lifetime limit of $200,000 in contributions for the special needs beneficiary.

Canada Disability Savings Grant (CDSG)

The Government of Canada will make contributions to the RDSP by paying matching grants tied to the family’s income. These matching grants are up to a maxium of $3,500 per year and $70,000 over the lifetime of the special needs beneficiary. The Government of Canada will pay these grants until December 31 of the year in which the special needs beneficiary turns 49.

Canada Disability Savings Bond (CDSB) 

The Government of Canada will pay bonds of up to $1,000 per year to low income Canadians with disabilities. Unlike the CDSG, no contributions have to be made to get the bond. The lifetime limit on the bonds is $20,000 and the Government of Canada will pay them until December 31 of the year in which the special needs beneficiary turns 49.

Income Tax

The person making the contribution to the RDSP may not deduct the contribution from their own taxable income.  Contributions paid out of the RDSP to the special needs beneficiary are not included as taxable income to the beneficiary.

The CDSG, the CDSB  and investment income earned in the RDSP  are inlcuded in the special needs beneficiary’s taxable income when the special needs beneficiary withdraws any of these funds from the RDSP.

Estate Planning

Planning for the financial security of a special needs beneficiary is challenging. RDSPs are an excellent fianancial tool and product for maximizing the money invested now to provide future income for a special needs beneficiary.