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Registered Disability Savings Plan (RDSP)
What is it?
A Registered Disability Savings Plan (RDSP) is a government-registered savings program designed to assist Canadians with disabilities and their families in saving for long-term financial needs, including future medical and living expenses. Similar to an RRSP (Registered Retirement Savings Plan), an RDSP allows for tax-deferred growth of savings.
Contributions to an RDSP can vary from year to year, and there is no set limit. Contributions can be made until the end of the year when the beneficiary turns 59.
One notable feature of RDSPs is that anyone can contribute to them, provided they have written permission. Furthermore, there are no restrictions on how the withdrawn funds can be used, as long as they’re intended to benefit the beneficiary.
While your contributions to an RDSP aren’t tax-deductible, the income earned within the plan grows on a tax-deferred basis. The funds are taxed as income when you withdraw. Additionally, you may be eligible for government assistance in the form of grants and bonds to help boost your RDSP savings.
What can I use it for?
A Registered Disability Savings Plan (RDSP) provides long-term financial security for a person who receives the federal disability tax credit – whether that person is you or someone close to you. RDSPs have specific rules and regulations regarding their use, and they’re intended to cover expenses including future living costs, medical and healthcare expenses, education, quality of life enhancements, and estate planning.
Why invest in a RDSP?
A significant advantage of an RDSP is the tax-deferred growth on your contributions and government grants/bonds.
The government provides grants and bonds to help your savings grow faster.
No annual maximum
Contributions can be made to the RDSP up to a maximum lifetime limit of $200,000, and these contributions can continue until the end of the beneficiary's 59th year.
How does it work?
To open a RDSP, the beneficiary must be eligible for the Disability Tax Credit as determined by the Canada Revenue Agency (CRA). An RDSP can be opened by a legal guardian, parent, or the individual with the disability. The account holder will manage the RDSP on behalf of the beneficiary.
Contributions to an RDSP can be made by the account holder, family members, friends, or anyone with permission from the account holder. A key benefit of the RDSP is that the government will provide financial assistance in the form of grants and bonds, including the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB).
The Canada Disability Savings Grant is a matching grant provided by the federal government. It’s based on the beneficiary’s family income and the contributions made to the RDSP. Depending on income, the government will match either 100, 200, or 300% on the first $500 contributed annually. An additional grant is available for beneficiaries with lower family income and provides 100% matching grant on the next $1,000 contributed annually to the RDSP.
The Canada Disability Savings Bond is a government contribution provided to low-income individuals with disabilities. There’s no requirement for the beneficiary to receive the bond. The CDSB provides annual payments of up to $1,000 depending on family income.
Funds can be withdrawn from the RDSP at any time but are considered taxable income. The beneficiary has until the end of the year in which they turn 59 to make withdrawals. When the beneficiary turns 60, the beneficiary will receive a form of regular payment from the RDSP called a Lifetime Disability Assistance Payment.
RDSP by the numbers
The lifetime contribution limit
Age the beneficiary needs to start making withdrawals
Amount the Canada Disability Savings Grant will match up to per year in contributions
Is this right for you?
✔ Right for you if you:
You or the beneficiary is eligible for the Disability Tax Credit. To open an RDSP, the beneficiary must be eligible for the Disability Tax Credit.
You’d like flexibility when it comes to the use of funds. RDSPs can be used for various purposes to enhance quality of life for the beneficiary, from medical costs to living expenses.
You want tax-deferred growth. Offering tax-deferred growth on your contributions and government bonds/grants, RDSPs can help grow your investment more quickly over time compared to taxable accounts.
May not be right for you if you:
You’re ineligible for the Disability Tax Credit. If you/the beneficiary doesn’t qualify for the Disability Tax Credit, you cannot open a RDSP.
You have short-term financial goals. If you have short-term financial goals and don’t plan on using the RDSP for long-term savings, it may not be for you. RDSPs are designed for long-term financial security and may not provide immediate benefits for your short-term needs. Consider something like a mutual fund instead.
Products for a RDSP
You've settled on a RDSP, and it aligns perfectly with your financial objectives. It's time to choose the right products to invest your funds in and watch them flourish. Your potential earnings are directly linked to your comfort level with risk.
Discover the array of options that Conexus has to offer – there's a wealth of opportunities waiting for you!
An investment vehicle that pools money from multiple investors to buy a diversified portfolio of stocks, bonds, and other securities. Their key benefits include diversification and accessibility to a wide range of investment options, making it a convenient way for you to participate in the financial markets with reduced risk and expertise on your side from Conexus.
Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Online brokerage services are offered through Qtrade Direct Investing, a division of Credential Qtrade Securities Inc. Qtrade and Qtrade Direct Investing are trade names and/or trademarks of Aviso Wealth Inc. The information contained on this webpage was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This information is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities. The views expressed are those of the not necessarily those of Credential Asset Management Inc or Credential Securities.