If I open an RDSP for my disabled child, will he/she lose government benefits?

The Registered Disability Savings Plan (RDSP) has been around long enough now that most people involved with disabled adults are aware of the general operating rules. However, I do still get quite a few questions from parents who wonder if they might accidentally cause their children to lose their government disability benefits by creating this kind of account.

Provincial plans pay eligible handicapped individuals a monthly support amount, as well as offering free medical, dental, optical and other services. Obviously this is very important to most families as a financial benefit for the handicapped child. However, the provincial plans impose a financial test on the handicapped individuals so that if the individual has either more assets or more income than is allowed, they lose their benefits.

While parents are interested in setting up an RDSP, they want to make sure they don't lose those provincial benefits.

The Canada Revenue Agency has clearly stated that the money paid into an RDSP and the earnings on that money are not counted as an asset for the purpose of figuring out what a handicapped individual owns. In other words, opening an RDSP will NOT cause your child to be cut off from provincial benefits.

A few highlights about RDSPs:

• - a handicapped person is the beneficiary of the RDSP


• - there can be only one account per beneficiary


• - the account can be opened by the beneficiary him/herself or by the parents or legal representative of a beneficiary


• - the beneficiary must live in Canada


• - the maximum amount that you can contribute to the RDSP is $200,000 during the beneficiary's lifetime, but there is no limit per year


• - contributions put into a plan are not tax-deductible


• - anyone can put money into an existing RDSP


• - contributions must stop the year the beneficiary turns 59


• - there are matching government grants that are based on family income


• - the government matching grants can be as high as $70,000 during the beneficiary's lifetime


• - there are additional grants (bonds) for low-income families


• - when the beneficiary takes out money, he or she does not pay tax on the amount that the family contributed; he or she only pays tax on the portion the government contributed, and earnings on the government contributions


• - when the beneficiary dies, any money left in the RDSP must go into his or her estate.

If you want to know more about these, talk to your banker or your financial planner.