It is estimated that around 6.2 million Canadians over the age of 15 have one or more disabilities related to pain, flexibility, mobility or mental health. Living with a disability can bring unique challenges, including difficulty finding employment and increased financial insecurity. There is useful government funding that can provide economic support to individuals with disabilities and their families, but many people are not fully utilizing these programs.

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One of the most useful tools available to Canadians living with a disability is the registered disability savings plan (RDSP). The program was launched in 2008, but less than a third of eligible Canadians under the age of 59 have opened an RDSP account, according to a 2020 Statistics Canada survey. For wealth advisers, it’s critical to help build awareness of the benefits of RDSPs in order to better prepare their clients for difficult and unexpected events.

What is an RDSP?

It’s a long-term savings plan designed to support parents and individuals living with disabilities to save for long-term financial security. To qualify for an RDSP, the beneficiary must be eligible for the disability tax credit (DTC), be under the age of 60, have a social insurance number and be a resident of Canada. For minors, their legal guardian can be the plan holder.

Contributions to an RDSP are not tax deductible and can be made by anyone until the beneficiary turns 59 years old. There is a lifetime contribution limit of $200,000 but no annual limits, and the growth in the RDSP is tax free until withdrawals are made. Money must be withdrawn in the form of liability disability assistance payments (LDAPs) when the beneficiary turns 60 years old and can be used for any purpose.

Even if you are not able to make regular contributions, those who qualify should still consider an RDSP and take advantage of the Canada disability savings bond (CDSB), a program designed to support families whose net income is less than $50,000. The size of the bond depends on the beneficiary’s family income, but the Canadian government will deposit bonds of up to $1,000 annually into an opened account, regardless of whether the account holder contributes to the savings plan.

RDSPs can be further supplemented with a Canada disability savings grant (CDSG), whereby the government matches contributions made to the RDSP. Grants range from 100 to 300 per cent of contributions, with a maximum of $3,500 per year and a lifetime maximum of $70,000.

Government-supplied bonds and grants are particularly valuable for those with low incomes or for individuals whose disability prevents them from maintaining regular employment, but they are not without their restrictions. Eligibility for both the bonds and grants depends on a family’s annual net income, and the amounts received must be held for at least 10 years to avoid the required repayment if withdrawn ahead of time.

Why are RDSPs underutilized?

A lack of public awareness is one of the principal reasons why more people aren’t opening an RDSP. In the Statistics Canada survey mentioned above, more than 46 per cent of eligible Canadians who were approved for the DTC but did not open an RDSP had never heard of RDSPs.

The complexity of RDSPs is another reason for the lack of utilization. For example, RDSPs generally do not impact eligibility for other government support programs such as GST credits, old age security and other provincial support programs. However, grants, bonds and investment income are taxed when withdrawn as LDAPs, whereas contributions that do not come from a rollover of a retirement savings plan or registered retirement income fund are not. Those who qualify for an RDSP may need to speak with their wealth adviser to make sure this program is beneficial in their unique situation.

How to make RDSP part of your plan?

The reality is that not everyone will be eligible for the RDSP government bonds or have the spare cash to contribute to numerous savings plans at once. A wealth adviser can help many families consider these conflicting priorities in relation to their situation and develop a holistic wealth plan to meet their personal and financial goals.

Whether it’s paying for medical expenses, housing, training or other opportunities that help people living with disabilities reach their full potential, the long-term financial safety net that an RDSP brings could help provide individuals and their families with peace of mind when planning for the future.

Our society has made strides to lessen the stigma associated with discussing disabilities, but these conversations remain challenging to navigate.

Susan O’Brien is a wealth adviser at Richardson Wealth.