The Registered Disability Savings Plan (RDSP) is a saving tool that helps people with disabilities secure their long-term financial futures. Depending on the individual’s circumstances, the Government of Canada may provide up to $70,000 in Canada Disability Savings Grants (CDSG) and $20,000 in Canada Disability Savings Bonds (CDSB).
If you recall, the CDSG is a matching grant the government provides, where its astonishing matching rate really encourages Canadians with disabilities or their families to save within the RDSP.
I work with many families that have received tens of thousands of dollars in CDSG throughout the years. So in this post, I will focus on maximizing the RDSP through the CDSG.
To maximize the RDSP, one may contribute the amount required to receive the maximum Canada Disability Savings Grants (CDSG) every year. Depending on the family net income of the beneficiary and contribution amount, the yearly maximum CDSG could range between $1,000 to $3,500.
Let’s start with some basic 101 on the CDSG!
Here’s a table with the 2021 CDSG matching rates:
| Family net income | CDSG matching rates | Maximum annual CDSG |
|---|---|---|
| Up to or equal to $98,040 | 300% on first $500 200% on next $1,000 | $3,500 |
| Over $98,040 | 100% on first $1,000 | $1,000 |
Note that for a minor beneficiary, family net income is that of their parents. For an adult,
family net income is that of the beneficiary and their spouse, if applicable. Also, the income
threshold is indexed annually to inflation.
Let me show you a couple of real-life examples so you can have a better understanding of the RDSP matching grant
Example #1: Low-income widow with an autistic child
I have been working with a widow for many years. (To protect their identity, let’s call her Mrs.Y.)
When I initially worked with Mrs.Y, her son was around 8 years old and was diagnosed with autism. He got the Disability Tax Credit approved by filling out the T2202 form. I helped them to set up the Registered Disability Savings Plan (RDSP.)
Although Mrs.Y is the sole breadmaker of the family, she hasn’t been able to earn a lot of income since she needs to spend a considerable amount of time taking care of her son. Therefore, throughout the years, their family’s net income is within the first threshold.
However, her deceased husband has left them a decent size of estate and savings, so Mrs.Y has been able to contribute a yearly $1,500 to the RDSP.
As a result of her contribution, the Government of Canada has been depositing an annual matching grant of $3,500 to her son’s RDSP since we started working together.
Example #2: High-income parents with a disabled daughter
This is another family I have been working with for years. (Let’s call them Mr.G and Mrs.G)
They are both high-income earners working in the IT industry. They have a daughter with a severe mobility issue. Their family net income is over the first threshold of the matching rate, so they were not eligible for the full $3,500 of CDSG.
Rather, for every $1,000 contribution they made each year, the Government of Canada had deposited $1,000 of matching grants.
Even though interest rate has risen lately, this is still a very attractive matching rate when compared to leaving the money in a regular savings account.
For extra savings they have on top of the RDSP, we invested them through other plan types.
Can you catch up on RDSP contributions?
Despite the maximum CDSG being up to $3500/year, there are families where the RDSP beneficiary did not receive the full amount. Sometimes, this could be due to the family did not have enough budget to make the required contributions.
However, even if the RDSP account holder did not contribute enough to receive the full matching grant, in many instances, they can still make up by contributing more in future years to recoup the carried forward matching grant.
Another scenario that I often come across is the CRA has backdated the Disability Tax Credit. This is good news because the RDSP beneficiary may receive the matching grants they were entitled to from earlier years.
Here’s an example of how an RDSP can catch up 10 years worth of Canada Disability Savings Grants (CDSG) by making additional contributions
| Year | Contributions | Calculation | Canada Disability Savings Grant |
|---|---|---|---|
| 2021 | $3,500 | $500 X 300% X 7 years | $10,500 |
| 2022 | $4,000 | $500 X 300% X 5 years = $7,500 $1,000 X 200% X 1.5 years = $3,000 | $10,500 |
| 2023 | $5,000 | $500 X 300% X 1 years = $1,500 $1,000 X 200% X 4.5 years = $9,000 | $10,500 |
| 2024 | $5,000 | $500 X 300% X 1 years = $1,500 $1,000 X 200% X 4.5 years = $9,000 | $10,500 |
| 2025 | $4,000 | $500 X 300% X 1 years = $1,500 $1,000 X 200% X 3.5 years = $7,000 | $8,500 |
| Total | $21,500 | $50,500 |
As you can see in this example, the RDSP beneficiary is able to build up significant savings by catching up on all the available CDSGs.
But keep in mind that the amount of grants one could receive could differ from the above example because the CDSGs are subjected to the family net income, the number of years that the person has qualified for Disability Tax Credit and other factors.
Even if there are carried forward CDSG, the most the government will give out on each individual year is up to $10,500.
The furthest you can go back is 10 years and the matching grants are payable only until the end of the year when the RDSP beneficiary turns age 49.
So if your Disability Tax Credit is already approved, you should plan your contribution accordingly.
Still confused after reading the post?
Don’t worry! Every year, the Government of Canada will mail out a “Letter of Annual Grant Entitlement.” In there, it will state the amount of matching grants you are entitled to for the year, and the contribution required to receive such an amount. Usually, it will be sent out during February and March.
If you still haven’t received it by then, you may call the EDSC department at 1-866-204-0357. They would require the name and SIN of the RDSP beneficiary.
One of my clients and I just called them in early January this year, but they told us that the grant info won’t be ready until early February. So we might try again at a later date.
Curious about whether we’re the right fit for your RDSP planning? Let’s schedule a preliminary online meeting to discuss your financial needs. This will give you a clearer understanding into our client-focused approach. To get started, just drop me an email at Samuel@SamuelConsultant.com
But should you really maximize the RDSP?
As much as I like the idea of building long-term savings, maximizing RDSP might not be for everyone.
For example, I have clients who plan to purchase a house in the next couple of years. Since the closing will require a significant of their savings, their financial situation is not in a position to contribute too much to the RDSP.
Keep in mind that early withdrawal from the RDSP may trigger a clawback of the government’s grants and bonds. Therefore, in many instances, RDSP might not be a suitable choice to save for a home purchase.
As for my clients, although some of them don’t have the budget to contribute enough to reach the maximum RDSP grant limit, but they still started making a monthly contribution that fits into their cash flow.
This habit helps them build long-term wealth for themselves in the future.
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Disclaimer:
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