RDSPs: A Game-Changer if You Qualify

RDSPs — these deserve MUCH more attention than they have received.

💈💈💈

I have done a horrible job over the years of drawing attention to RDSPs — Registered Disability Savings Plans — and their merits. It’s a big regret of mine and I made sure that I did a better job in the updated “The Wealthy Barber.” Unfortunately, the industry and even the government also haven’t shone a light on these wonderful plans particularly effectively.

So, what is an RDSP? It’s a container that you contribute to and invest within. And like other registered containers — RRSPs, TFSAs, RESPs, et cetera, certain privileges are granted to RDSPs from the federal government. Big privileges. Incredibly generous privileges. Ones that can help a family dealing with a member’s disability immensely

on the financial front. There’s government matching. Amazing government matching. If, for example, a family’s net income is below the threshold amount — I think it’s $106,000 — the government will match every dollar you contribute up to $500 with $3. That’s right. Three for one. The next $1000 you contribute, they’ll match two for one.

Therefore, a qualifying family contributes $1,500 and gets $3,500 in matching. Wow. Plus the money grows within the plan, sheltered from tax — so you get tax-free compounding — and when it is eventually withdrawn, contributions come out tax free (because you’ve already paid tax on them) and the government money and investment growth are taxable to the beneficiary — and they are often in a lower tax bracket.

C’mon. A true no-brainer. We don’t have time to get into all the nuances here. Lifetime limits, age cutoffs, et cetera. But if you’re eligible, check them out. Please! Now, big question. Who is eligible? Well, the key rules are: 1) The beneficiary must be a Canadian resident with a valid SIN. 2) The beneficiary must be eligible for the federal Disability Tax Credit.

That’s the gateway requirement. So a proper medical professional must certify on form T2201 that the person has a severe and prolonged impairment in one or more basic activities of daily life. Then the CRA must also approve it. Look, these plans can really make a huge difference. I should have mentioned them much more over the years.

Please help me to spread the word now.