a) Who Can Contribute?
Anyone, with the written authorization of the Holder can contribute to an RDSP. This means contributions can be made by the Beneficiary, family, friends, charities, businesses, foundations, or others. People contributing to RDSPs do not receive a tax deduction for their contribution – in most circumstances, however, their contribution is matched by a very generous amount from the federal government (see How does the federal government contribute? for more detail).
b) Contribution Limits
$200,000 is the lifetime limit for contributions to an RDSP. This does not include contributions made by the federal government through the Grant and Bond, or the income generated within the RDSP.
There is no annual limit to contributions, provided the $200,000 lifetime limit is not exceeded. All contributions into an RDSP have to be made by the end of the year in which the person turns 59.
People may make regular planned contributions or larger lump sum contributions. As a result, people receiving larger amounts in the form of gifts, inheritances or settlements may consider sheltering the funds in an RDSP so that they don’t become ineligible for provincial disability benefits.
An important decision is whether to contribute more or less than the government. People contributing less than the federal government will have significantly less flexibility in withdrawals or payments; larger withdrawals will probably not be possible.
c) RRSP/RRIF Rollover to an RDSP
Effective 2010, new provisions permit parents and grandparents to rollover RRSPs and RRIFs, at death, to the RDSPs of financially dependent children and grandchildren, on a tax deferred basis. A person is generally considered to be financially dependent if his/her income is below a specific threshold ($17,621 for 2010). A person whose income is above this amount may also be considered as financially dependent if dependency can be demonstrated.
Normally any assets held in RRSPs and RRIFs are considered as income in the year of the death – often leading to a sizeable tax bill. When these assets are passed to the RDSP of a child or grandchild, that tax is waived, leading to sizeable tax savings.
As much as $200,000 can be rolled into an RDSP but the amount of the rollover may not exceed the Beneficiary’s available RDSP contribution room. That means if contributions have already been made then the amount will equal $200,000 minus previous personal contributions.
The rollover will count towards the Beneficiary’s lifetime contribution limit but will not be matched by Canada Disability Savings Grants. The rollover will be considered as a personal contribution for the purpose of determining whether personal or government contributions are greater. But because the rollover will not have been subject to income tax, it will be considered taxable when withdrawals are made.
The rollover is effective for deaths occurring on or after March 4, 2010. For deaths of an RRSP annuitant after 2007 and before 2011, special transitional rules will apply.