If you’re a person with a disability who’s able to maximize your contributions, grants and bonds, it may give you the opportunity for greater financial comfort.
Employment rates among Canadians with disabilities lag significantly behind the general population, with Statistics Canada reporting a 49% employment rate compared to 79% among the general population. For individuals unable to work or facing limitations due to disability, provincial income support programs often prove inadequate, especially considering the clawback of benefits when working.
Living with a disability incurs additional expenses such as adaptive equipment, medication, specialized dietary needs, and accessible transportation, further exacerbating financial challenges.
Despite these hardships, one avenue for financial security remains relatively untapped by provincial disability income support programs — the Registered Disability Savings Plan (RDSP).
The Registered Disability Savings Plan (RDSP) serves as a valuable savings tool for Canadian residents under the age of 59 with disabilities. Key features distinguishing the RDSP from other Registered Savings Plans include:
To open an RDSP, eligibility for the Disability Tax Credit (DTC) is required. However, the national take-up rate of the RDSP among DTC-eligible individuals was only 31.17% based on data from 2017. This low adoption rate is attributed to both limited public awareness and challenges some face in qualifying for the DTC.
Geoffrey Zaldin, co-founder of Special Needs Financial, emphasizes the burdensome paperwork and challenges associated with justifying disability, expressing concerns about the unnecessary hurdles faced by individuals navigating the DTC qualification process.
To apply for the Disability Tax Credit (DTC), download and complete form T2201, then submit it to the Canada Revenue Agency (CRA) for review. Eligibility for the DTC requires meeting one of the following criteria:
The CRA defines “markedly restricted a significant period of time” as being unable or requiring significantly more time to perform basic daily activities compared to a non-disabled individual, even with therapy.
Geoffrey Zaldin emphasizes the need for a broader understanding of disability beyond the strict DTC criteria, especially regarding additional expenses faced by those slightly below the threshold.
Canada’s Senate Committee on Social Affairs, Science, and Technology recommended separating the RDSP from the DTC due to its strict criteria. However, as of March 2019, proposed changes are pending, leaving current strategies for DTC approval intact.
Cynthia Minh, Access RDSP program manager at Disability Alliance BC, suggests providing detailed information about chronic symptoms, accommodations, and management to provide the CRA with a comprehensive view of your disability. Keeping detailed notes on functionality and seeking assistance from non-profit organizations like Disability Alliance BC can also aid in the application process, ensuring that any assistance received is not contingent upon fees or a percentage of recovered funds.
Everyone under 49 who opens an RDSP is automatically eligible for the grant or the bond (depending on their net family income).
The Canada Disability Savings Grant (CDSG) offers matching benefits of 100%, 200%, or 300% up to $3,500 annually and $70,000 in total contributions.
For families with a net income of $93,208 or less, the government provides a $3 match for every $1 contributed on the first $500 annually, totaling a grant of up to $1,500. Additionally, they match $2 for every $1 contributed on the next $1,000 annually, providing a grant of up to $2,000.
For families with a net income exceeding $93,208, the government matches the first $1,000 contributed dollar for dollar.
The Canada Disability Savings Bond (CDSB) offers a $1,000 annual bond for 20 years, totaling a lifetime maximum of $20,000. This benefit is provided by the government in addition to the Canada Disability Savings Grant (CDSG) and does not require any additional contributions from the beneficiary.
The CDSB is available to individuals with a family net income below $30,450. For those with family net incomes between $30,450 and $46,605, a prorated partial bond is provided based on the formula outlined in The Disability Savings Act.
Both the CDSG and CDSB can be retroactively claimed for up to 10 years, extending eligibility for as long as the beneficiary would have been entitled to them. However, there are limits to retroactive grants and bonds, with a maximum of $10,500 in retroactive grants and $11,000 in retroactive bonds annually.
“Ideally, contribute as much as you can as quickly as you can, while still maximizing the grant entitlement,” advises Zaldin.
Helene Eschbach, an RDSP advisor with the Disability Planning Helpline, has managed her son’s RDSP for 11 years. She plans to continue contributing until he turns 42, at which point they’ll have maximized contributions, grants, and bonds.
Eschbach’s son qualifies for the $1,000 bond annually, and with an annual contribution of $1,500, he receives the full $3,500 in annual grants. By age 42, he will have reached the contribution limit of $200,000, plus received $70,000 in grants and $20,000 in bonds. This tax-deferred accumulation totals $290,000. RDSPs offer investment options like GICs, mutual funds, stocks, bonds, and ETFs, potentially increasing growth depending on risk tolerance and time horizon.
“Unless it’s a substantial GIC rate of 6-7%, I believe you’d do much better with a diversified portfolio of stocks or mutual funds. What matters is your net return,” Zaldin advises.
You can estimate the future value of your RDSP using a free calculator.
You have the flexibility to withdraw funds from your RDSP at any age, but withdrawing within 10 years of receiving a grant or bond incurs penalties.
Geoffrey Zaldin explains, “Any grant or bond received from the government resets the 10-year clock. If you withdraw funds within this period, the government will reclaim any grants or bonds received in the last 10 years.”
After the 10-year period from the last grant or bond elapses, withdrawals can be made penalty-free at any age. However, Lifetime Disability Assistance payments commence automatically at the end of the year you turn 60, regardless of prior withdrawals, continuing until the account is depleted.
If government contributions exceed personal contributions, you can withdraw either 10% of the account balance annually or the balance divided by the number of years until age 83. These withdrawals are structured by the government to ensure financial support for the duration of the account holder’s life or until the RDSP is depleted.
Understanding and adhering to the rules of the RDSP can indeed be complex and limiting. However, for individuals with disabilities who can maximize their contributions, grants, and bonds, it presents an opportunity for enhanced financial security and stability.
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