The RDSP works much like a Registered Education Savings Plan (RESP). Contributions are not tax-deductible and are not included in income when paid out of an RDSP. Investment income earned in the plan accumulates tax-free. However, any grants, bonds, or investment income earned in the plan are included in the beneficiary's income for tax purposes when paid out of the RDSP.

An RDSP can be opened by anyone who meets the following criteria:

• A person with a disability that is eligible for the Disability Tax Credit, is of the age of majority but less than 60 years of age, and has the legal capacity to manage his or her own finances
• A parent of a dependent with a disability who has not attained the age of majority
• A guardian or other representative who is legally authorized to act on behalf of a person with a disability

Once the RDSP has been opened, anyone can contribute to the plan, whether family or not, as long as they have the written permission of the plan holder or person that manages the RDSP on behalf of the beneficiary. There is no annual limit on amounts that can be contributed to an RDSP of a particular beneficiary in a given year; however, there is a lifetime limit of $200,000. Contributions cannot be made after the end of the year in which the beneficiary turns 59.

The beneficiary must begin withdrawals by the end of the year in which he or she turns 60, and will be subject to tax only on earnings, not on the capital. Having an RDSP has no impact on any other federal benefits, such as the Canada Child Tax Benefit, the GST Credit, Old Age Security or Employment Insurance

Ottawa offers a generous grant on contributions, the Canada Disability Savings Grant (CDSG). The CDSG provides matching contributions of 100%, 200% or 300% up to $3,500 annually, based on a family's net income, with a lifetime limit of $70,000.

Lower-income families may also receive the Canada Disability Savings Bond (CDSB). No contributions are required to be eligible for the CDSB, which was created to assist families who may not have the resources to make a contribution. A tax return must be filed to be eligible for the CDSB. The maximum annual CDSB payment is $1,000, and the lifetime maximum is $20,000.

Recent changes to the plan allow you to carry forward unused grant and bond entitlements for a 10-year period preceding the opening of the plan. In addition, you are now allowed to rollover a deceased individual's RRSP proceeds to the RDSP of the deceased individual's financially dependent infirm child or grandchild. More details and additional changes to the plan can be found on the Canada Revenue Agency website.

Professional advice can help determine whether or not an RDSP is the best option. In some cases, it may be more effective to use a trust to secure the child's future.

If you are unsure whether or not an RDSP may be right for your family, contact your BlueShore Financial advisor today to discuss your options.