Last updated: January 21 2009

RDSP: Checklist for Investors

The RDSP is a new savings plan designed to accumulate funds for the benefit of a disabled person which took effect in 2008. Generally RDSPs will function in very much the same way as RESPs do now. This important new investment opportunity for Disability Tax Credit-eligible Canadians will generate government grants and bonds for the 2008 tax year if deposits are made before March 2, 2009. However, only a few institutions are ready to take your deposits, with BMO being the first out of the gate to do so.

The Registered Disability Savings Plan (RDSP) may be established for an individual who has a severe and prolonged physical or mental impairment and qualifies for the disability tax credit during the year of establishment, or would have if the restriction for the attendant care amount were disregarded. Contributions may not be made to the plan in years for which the individual is not DTC-eligible. In that case the plan must be terminated by the end of the year following the year in which the beneficiary ceases to be DTC-eligible.

Eligibility Any person eligible to claim the Disability Amount can be the beneficiary of an RDSP and the plan can be established by them or by an authorized representative. Anyone can contribute to an RDSP ñ they need not be a family member.

Tax Treatment Contributions are not deductible. Income accumulates in an RDSP tax free. Contributions withdrawn from an RDSP are not taxable, but all other amounts ñ accumulated investment income, grants and bonds (discussed below) ñ are taxable in the hands of the beneficiary as withdrawn.

Contributions There is no annual limit on contributions but lifetime contributions cannot exceed $200,000. Contributions are permitted until the end of the year in which the disabled beneficiary turns 59.

Withdrawal The beneficiary must start to withdraw funds from the RDSP in the year he or she turns 60. Maximum annual withdrawal amounts are to be established based on life expectancies but an ability to encroach on capital is also to be provided. Only the beneficiary and/or the beneficiary's legal representatives can withdraw amounts from an RDSP. Contributors can never receive a refund of contributions.

Sweeteners. The Federal government will provide financial assistance to RDSPs in two ways.

1. Canada Disability Saving Grant will match RDSP contributions as follows:

Family Net Income	Family Net Income
Up to $75,769*	Over $75,769*
First $500 ñ 300% (maximum $1,500)	First $1,000 ñ 100% (maximum $1,000)
Next $1,000 ñ 200% (maximum $2,000)
Therefore: $1,500 contributed to RDSP generates $3,500 CDSG	Therefore, $1,000 contributed to RDSP generates $1,000 CDSG
*2008 levels; to be indexed annually, based on upper income limit of the 22% tax bracket

Family income is calculated in the same manner as it is for Canada Education Savings Grant purposes except that in years after the beneficiary turns 18 family income is the income of the beneficiary and their spouse or common law partner.

There is a lifetime maximum of $70,000 that will be funded under the CDSG and an RDSP will not qualify to receive a CDSG from the year in which the beneficiary turns 49.

2. Canada Disability Savings Bond. Unlike the CDSG, there is no requirement that a contribution be made to a RDSP before a savings bond contribution is available.

Next week: Part II of the RDSP Checklist for Investors

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RDSP: Checklist for Investors

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