Expert Q&A: Everything You Need to Know About RDSPs for Children with a Disability

Parents of children with disabilities want nothing more than reassurance that their child will be cared for in the years to come. But saving and planning for someone with unique needs can be a complicated process, and parents often don’t know where to begin.

That’s where a Registered Disability Savings Plan (RDSP) can make a difference: it is a powerful savings tool for people with disabilities to secure their future. Eligible Canadians are allowed to deposit up to $200,000 into an RDSP and can potentially receive up to $90,000 in government grants and bonds. With government support, tax benefits and compounding growth, funds saved within an RDSP have the potential to make a huge difference in the longer term, especially when opened during childhood.

These are big numbers, and yet RDSPs remain underutilized. A mere 21 percent of Canadians living with a potentially qualifying medical condition and 28 percent of caregivers are even aware of RDSPs, and just six percent have opened one, according to a recent survey by Concentra Trust, an Equitable Bank company providing services to a majority of Canada’s credit unions.

Selena Gusikoski, Director of Registered Plans at Concentra Trust, brings 30 years of passion and experience in the banking industry, and specific expertise in registered plans. Importantly, she has personal experience navigating the process of opening an RDSP for a family member—her brother, Cody.

"Opening Cody’s RDSP was something we’d put off for a long time, but when we finally sat down to fill the forms as a family, I was surprised by how easy it was. We were fortunate to have opened the RDSP in time to receive the full government bonds and grants available, but I wish we’d taken the leap and opened it sooner to enjoy a longer runway of growth. It’s the one thing I always tell parents – it’s better to open this sooner rather than later so your child can make full use of the benefits,” Gusikoski says.

We connected with Gusikoski for a Q&A to discuss how RDSPs work, the benefits available and what the process looks like.

What is a Registered Disability Savings Plan and who qualifies to open one?

An RDSP is a savings plan designed to help individuals with disabilities plan for their future. RDSPs are supported by two key government incentives: the Canada Disability Savings Grant (CDSG), which matches contributions, and the Canada Disability Savings Bond (CDSB), which provides funds to low- to moderate-income beneficiaries without requiring personal contributions.

Eligibility for an RDSP depends on qualifying for the Disability Tax Credit (DTC), a key requirement for opening an account, Gusikoski says. For individuals under the age of majority, or those who can’t make financial decisions for themselves, a parent or legal representative can open and manage the RDSP on their behalf.

What are the benefits of opening an RDSP compared to other savings products?

Gusikoski says that RDSPs offer significant advantages over traditional savings accounts and investment products, and she highlighted a few:

• Government grants and bonds: Based on how much the individual contributes and their net income, the government matches contributions paying up to $70,000 in CDSG, while bonds are provided to lower-income individuals through the CDSB up to a lifetime limit of $20,000. While higher-income individuals may not qualify for the CDSB, they can still benefit from at least a 100 percent to 300 percent match through the CDSG.
• Tax advantages: Like some other registered accounts, any growth in the RDSP is not taxed until the funds are withdrawn. Grants, bonds and interest are taxed in the hands of the beneficiary, while their personal contributions are not taxed.
• Compounding growth: With contributions and government incentives, compound growth is amplified in an RDSP, especially when opened during childhood that allows for a long period for growth.

Here’s a quick case study to illustrate the difference. With annual contributions of $1,500 and a family income of less than $30,000, the balance of an RDSP could grow to approximately $148,700 over 20 years, thanks to matching grants, bonds and interest. In comparison, the same annual contributions placed in a typical GIC or savings product might only reach about $37,175 over the same period.

How can someone contribute to an RDSP?

Contributions to an RDSP can be made by the holder of the RDSP, as well as by family members and friends, provided the holder grants permission. This can be especially helpful for people who want to support the long-term financial security of a loved one with a disability.

“Gifting into someone’s RDSP, whether it’s birthdays or a festival, means your contribution will be matched equally or up to three times over in government grants … it’s a smart way to help someone you love,” Gusikoski says.

How do withdrawals work for RDSPs?

It’s important to remember that withdrawals are designed to ensure the RDSP is used for long-term savings, Gusikoski says. “When the beneficiary reaches age 60, they must begin withdrawing from their RDSP. This ensures that the funds are used to support the beneficiary's financial needs as they age.”

Withdrawals are permitted before the age of 60, but there are a few things to keep in mind:

• Grants and bonds must stay in the account for 10 years: Any funds received through government incentives must remain in the account for at least a decade before they can be withdrawn without penalty.
• Age limit: When the beneficiary reaches age 60, they must begin withdrawing from their RDSP. This ensures that the funds are used to support the beneficiary's financial needs as they age.

It’s important to note that if the beneficiary of an RDSP has a life expectancy of five years or less, there are options available to withdraw funds before the government incentives mature and before age 60 without forfeiting government money, Gusikoski adds.

What can withdrawals be used for?

Withdrawals can be used for any purpose. This might include covering the costs of healthcare, housing, daily living expenses or other necessary services.

What are some common misconceptions about RDSPs?

Many people are unaware of the full benefits of RDSPs, and there are a few common misconceptions that may prevent families from taking advantage of these plans:

• They’re too difficult to set up: Some families might think that RDSPs are complicated to establish, but setting up an RDSP is relatively simple and benefits are worth the effort over the longer term.
• Only low-income families can benefit: Some people assume that RDSPs are only beneficial for those with lower income, but this isn’t the case. Even families with higher incomes can benefit, with the government matching contributions by 100 percent to 300 percent up to an annual limit based on income and a lifetime maximum of $70,000 in grants.
• It’s too late to start if the child is older: The key is to open the plan as soon as possible to maximize growth, but opening it in adulthood can still offer many benefits, including government grants and bonds.

Why should someone consider opening an RDSP with a credit union?

Credit unions are a great option for opening an RDSP, as they are often deeply integrated into their communities and can provide personalized service, Gusikoski says.

“I come from a small town in Saskatchewan and bank with a credit union, and I’ve seen first-hand how well-integrated my credit union is within the community—that kind of relationship offers a great deal of comfort with asking questions, even ones that may seem quite basic. For someone with a disability or their caregivers, that comfort can be critical in navigating the RDSP process,” Gusikoski explains.

What advice do you have for families with children who qualify?

Gusikoski’s advice is straightforward: start early.

"The sooner you open an RDSP, the better," she says. "Even if your family income is above the thresholds for a government bond, or you can only contribute a small amount, the growth potential of an RDSP is significant. Contributions, combined with government matching, can lead to impressive growth over time, especially if the RDSP is opened early in a child’s life.”

To open an RDSP with a credit union, find your closest one here. You can also open one with Concentra Trust directly here.