The Registered Disability Savings Plan (RDSP) and Your Disability Settlement

The Registered Disability Savings Plan (RDSP) and Your Disability Settlement

By Steven Muller LL.B, J.D, LL.M.

Vice-President, Share Lawyers

Often questions arise at the conclusion of a long-term disability action or motor vehicle claim as to how to ensure long-term financial security. Asking the right questions from your financial advisor and accountant is very important. For some disabled persons who have concluded a settlement or are granted an award from the court, the Registered Disability Savings Plan (RDSP) is a useful way to grow their settlement and ensure financial security.The RDSP is a tax-sheltered savings tool that can be used by disabled persons themselves, through their parents or legal guardians. Similar to an RESP, contributions to the RDSP are not tax deductible but attract matching grants in the form of a Canadian Disability Savings Grant (CDSG). The growth of investments within the RDSP is not taxed. The grants and investment gains within the plan are taxed in the hands of the beneficiary when withdrawn.

RDSPs are available to individuals ages 59 or younger who are eligible to receive the Federal disability tax credit. The maximum CDSG grant through Ottawa is $3500.00 in an RDSP per year provided that the beneficiary’s family income is $75,769.00 or less. If the family income is over that amount, one dollar for every one dollar contributed to a maximum of $1000.00 per year is granted. The lifetime contribution limit on putting money in an RDSP is $200,000.00 and the lifetime maximum grant money available is $70,000.00.

The deadline for contributing to an RDSP account and getting the matching Canadian Disability Savings Grants (CDSG) for 2008 has been extended to March 2, 2009. Two institutions offer RSDP accounts: Royal Bank and Bank of Montreal.

Where you are disabled from a car accident or have an illness like MS or Parkinson’s and are in receipt of the disability tax credit through the Federal Government, the RDSP can be used as a way to save up for adaptive technology, home care or future financial security.

NOTE:  Before investing in a RDSP or any other investment, proper investment advice should be obtained as to whether it can benefit you in your particular circumstances, as it may not be applicable in all circumstances, and other rules, regulations and conditions may apply.