RDSP Made Simple: Secure Your Future

RDSP Made Simple: Secure Your Future breaks down the essentials of the Registered Disability Savings Plan in a clear and accessible way. This episode explores who qualifies, how the RDSP works, and the valuable government contributions available to help grow your savings. Whether you’re planning for yourself or supporting a loved one, you’ll gain practical insights to make informed decisions and build greater financial security for the future.

Transcript

Coast Capital Savings, a proud supporter of the Thrive Program since 2020, is a member-owned financial cooperative with an 80-year-old legacy of unlocking financial opportunities that positively impact people and communities. Driven by their social purpose of building better futures together, they look at everything they do through the lens of how they can help their 600,000 members, employees, and communities. Ranked in the platinum category of the 2022 Corporate Knights Social Purpose Ranking and a proud Certified B Corporation Registered, they're part of a global movement building a more inclusive, equitable, and regenerative economic system. Each year, they invest 10% of their bottom line into local communities, which over the past two decades totals $100 million. To learn more, visit them online at coastcapitalsavings.com.

Welcome to the Thrive Podcast, an open space to celebrate diversity, share our perspectives, and promote the abilities of youth with disabilities. Thrive is a program at the BC Centre for Ability and is generously sponsored by Coast Capital Savings.

This podcast is produced on the traditional lands of the Coast Salish peoples. I'm your host and producer, Anu Pala.  Welcome back to our Financial Literacy Series. Today we're focusing on the Registered Disability Savings Plan, known as the RDSP, a program designed to support long-term financial security for people with disabilities and their families. For some, it can feel confusing or overwhelming. So in this episode, we'll break it down into everyday terms, what it is, who it's for, and how it works. We'll cover contributions, government supports, and long-term planning without assuming prior knowledge or pushing anyone towards a particular choice. This isn't about getting everything right. It's about understanding your options and seeing how financial planning can look different for everyone. Whether you're learning for yourself, a family member, or just to be better informed. This conversation is here to offer clarity, not pressure. Once again, I have Coast Capital Savings Regional Manager of Wealth Management Services, Shauna Lynde. Thanks so much again for joining us, Shauna. 

Shauna : Absolutely. Thanks for having me. 

Anu: Today, we're going to be talking about RDSPs, so let's just jump right into it. 

Shauna: Sure.

Anu: What is the RDSP and why was it created? 

Shauna: So the RDSP, Registered Disability Savings Plan, is a government program that helps Canadians with disabilities save money for the future. It's special because the government adds money through grants and bonds and the savings grow tax-free until withdrawn. 

Anu: Who is eligible to open and benefit from an RDSP? 

Shauna: So the RDSP can be opened by the individual or their parents or caregivers and they must qualify for the disability tax credit, so the DTC as it's commonly known. That's the most important factor. Also, they must be a Canadian resident, and they must be under the age of 60 when opening. As with most investments, it's better to start the earlier as possible. 

Anu: And how does the RDSP help individuals save for the future? 

Shauna: So it provides a safe, long-term way to save where contributions grow tax-free and the government programs add significant money. For example, the Canadian Disability Savings Grant and Bond, I'll explain a little bit how they work. So the grant, the government matches contributions up to 300%. For example, if you contribute $1,500, that can bring in $3,500 in grants. The lifetime maximum for this grant is $70,000. The bond is for lower income beneficiaries and the government will contribute up to a thousand dollars a year even if no money is put in. The lifetime maximum for the bond is twenty thousand dollars. So all in all that's an additional ninety thousand dollars. In addition you can catch up for example if you found out about it a little later you can catch up. For example, if you found out about it a little later, you can catch up with unused grant and bond room. It can be carried forward and up to $10,500 in grants and $11,000 in bonds can be claimed in a single year. 

Anu: That is an amazing investment, I must say, and I highly recommend that if there are families out there, individuals out there who have the ability to obtain an RDSP, I think it's just such an amazing program.

Shauna: It really is. It's really meant for the long term. So I'll explain a little bit how contributions grow over time. So contributions grow inside the plan without tax. So similar to an RSP or tax-free savings. However, you do not get a tax deduction when you contribute, but growth and government money are only taxed when withdrawn. So the money that you put in is not taxed. And the government money and the growth that is taxed is typically at a lower rate since the person with the disability often has a lower taxable income. 

Anu: What happens if an individual needs to withdraw their funds earlier?

Shauna: So withdrawing within 10 years of receiving grants and bonds usually means paying back some of the government money. RDSPs work best as long-term savings tools. However, the government does contribute significant money in grants and bonds, so it is really meant for the future. 10 plus years, as long as you can understand that the government money that they've put in needs to be kept in for a minimum of 10 years, then it's a great savings vehicle.

Anu: Okay, excellent. So just to break it down a little bit more, Shauna, could you explain how the grants and bonds actually work? 

Shauna: Sure. So the Canadian Disability Savings Grant, so that is the one where the government matches contributions up to 300%. So the government matches contributions up to a maximum of $3,500 a year and $70,000 per lifetime. So the match really depends on the family income or the individual's income depending on their age. For example, the government will match up to 300% of the first $500 contributed. That's for lower or mid incomes and then up to 200% on the next $1,000. So by contributing $1,500 in a year, you can maximize the government grants and they will contribute an additional $3,500 a year. So even if your household income is low to mid-range, you could get $3 for every $1 you put in. Then the Canadian Disability Savings Bond, so the CDSB, Then the Canadian Disability Savings Bond, so the CDSB, is for lower income families or individuals. The government can deposit money even if you can't afford to contribute. And depending on your income, the government will contribute up to $1,000 per year to a maximum $20,000 per lifetime. So the bond for lower income beneficiaries, the government will add up to $1,000 per year, no contribution required. For the grant, the government will match up to $3,500 a year, 300% on the first $500 and 200% on the next $1,000, up to a maximum in the lifetime of $70,000. Now again, there is catch-up room. So you can claim unused grant or bond room from previous years. So either since age 18 or since 2008 when the RDSPs first started. So each year, the maximum catch-up is $10,500 in grants and $11,000 in bonds. Again, this sounds very complicated, but it isn't really that complex. It's really important to speak with a financial advisor, and they will guide you how to maximize your contributions in any catch-up room available.

 Anu: Okay, that's great. Thank you so much for breaking that down. Can you explain how contributions grow over time and are they tax sheltered? 

Shauna: Sure. So I'll speak a little bit about income and taxation. So contributions, so the contributions that the individual or their family makes, those are made with after-tax money. So you do not get a tax deduction, but it also grows within the plan tax-sheltered, and then when it's withdrawn, it's not taxed when taken out. Growth and government contributions grow inside the RDSP tax-sheltered, but they are taxable when withdrawn. But usually they are taxed at the beneficiary's income level. So typically it's on the lower medium side. So taxation is fairly small. 

Anu: How does the RDSP compare to other savings plans like the RRSP or other types of registered plans out there? 

Shauna: Sure. So the RRSP is made for retirement. It gives a tax deduction at the contribution, but is fully taxed later at redemption. The TFSA, the tax-free savings, is more flexible. So it's tax-free savings, but there's no government grant and there's no tax deduction. There is the FHSA, which is the First Home Savings Account. Again, it's fairly flexible, but there's no government grant for that. The RDSP, which is the Registered Disability Savings Plan, is unique to Canadians with disabilities, and it has the biggest government boost and incentive. 

Anu: Okay. And what are some common misconceptions or mistakes that people make with regards to the RDSP?

Shauna: I think it's similar to any type of investing, thinking that you need lots of money to start. As I said before, you really don't even need to make a contribution to be eligible for the government bonds. Not applying because it sounds too complicated. That's what financial institutions and your advisors are there for. They can simplify it, break it down, make it easy to apply, and they're there to help. Another mistake would be maybe withdrawing too early and losing those government funds. 

Anu: What should our listeners do today if they or someone they know may be eligible for the RDSP? 

Shauna: So I think the first step that you can do today is check if you or someone you love qualifies for the disability tax credit. That is the key to opening an RDSP. So just ensuring that you qualify for the disability tax credit and are a Canadian resident and are under the age of 60, of course, when you go to first open it. 

Anu: How can someone find out if they are eligible for the disability tax credit? 

Shauna: So if they don't know if they qualify for the disability tax credit, they can certainly check with their income tax return, the CRA website My Account, and they can determine whether or not they qualify for the disability tax credit that way.

Anu: And if they don't have access to that, if they have difficulty, they can also check with a family member or caregiver as well, right? 

Shauna: Absolutely. They can check with social worker, their resource centers, or whoever is close to them and their support system. 

Anu: I think that's one thing that's challenging for some, you know, it's like, well, am I eligible or not, you know? 

Shauna: For sure. And navigating all the documents and paperwork can be challenging, but there really isn't too much that's required. The best thing to do is just go into your financial institution and ask some questions, and they'll be able to guide you really simply through the process. 

Anu: Okay, awesome. And where can people go to get more information about the RDSP? 

Shauna: They can go to any financial institution website. We'll have a link to the RDSP. They can go to resource centers as well. They can go to the Coast Capital Savings website, www.coastcapitalsavings.com, and our financial education. There is a whole section on different types of registered plans and RDSPs is one of them. Also, they can give us a call, they can visit a branch, and we'll be happy to discuss with them. 

Anu: Okay, excellent. And if you could give one piece of advice to someone who is just beginning their RDSP journey, what would it be? 

Shauna: Well, definitely check if you qualify for the disability tax credit, but start early and don't worry about making any contributions because the government will potentially be able to contribute for you in the form of those bonds without you having to make any contributions whatsoever. 

Anu: Okay, wonderful. Thank you so much again for sharing this great information about RDSPs. 

Shauna: No problem. Thanks for having me. 

Anu: And that wraps up today's episode. Thanks again, everyone for joining us. This brings us to the end of our episode. I want to give out a huge shout out to Coast Capital Savings for their ongoing support of the THRIVE program. Thank you so much. I hope that today's topic resonated with you. And if it did, remember to share it far and wide with your networks. You never know who it might help. And while you're doing that, remember to like, follow, and leave a review. Thanks for listening, and we'll see you next time.