Many people who have a Registered Disability Savings Plan (RDSP) save for many years. Like any other way you invest, what you get depends on a few factors.
Top five things that affect what your RDSP will pay:
- How much money will you put in each year? There are no yearly limits on how much you can save. The lifetime limit for a beneficiary is $200,000.
- How much money will you get from government funding? You may qualify for one or both of these sources: * Canada Disability Savings Grant. This provides matching contributions of up to $3,500 each year until the end of the year the beneficiary turns 49. There is a $70,000 lifetime limit. * Canada Disability Savings Bond. This pays up to $1,000 each year until the end of the year the beneficiary turns 49 to low-income families. No RDSP contributions are required. There is a $20,000 lifetime limit.
- How many years will you save and invest? The longer you save, the more time your money has to grow. As this example shows, you can end up with more dollars in your RDSP if you start early – even if you contribute for fewer years! Example: Let’s say your net family income is $50,000 yearly. At age 19, you decide to save $300 a month for 10 years in an RDSP, or $3,600 each year. After 10 years, you will have put $36,000 into the plan in total. You would get at least another $3,500 from the government each year, or $35,000 over 10 years. With interest at 5.5 per cent, those dollars could grow to approximately $480,000 by age 60. Now let’s say you save that same $300 a month for 20 years – but you only start at age 29. You will put $72,000 into the plan in total. You will also receive $70,000 in government grants. If these savings grow 5.5 per cent each year, you would have about $446,500 in your RDSP by age 60. That’s less than if you started earlier and saved for just 10 years!
- How much will you make investing? If you put your money in a savings account, the interest rate tells you how fast it will grow each year. With other choices, like stocks and mutual funds, you don’t know what you’ll make. You could even lose money if your investments don’t work out. Tip: If you are worried about choosing investments on your own, you may want to get advice from an expert.
- What costs will you pay? With some RDSPs, your only costs are what it costs to invest. With other RDSPs, you pay fees to join. You may also pay fees each year you stay in the plan. You are more likely to have higher costs if your plan has an expert in charge. To learn more, read The difference an RDSP can make: Shannon's story.
Remember: An RDSP is a long-term savings plan.
It really helps to start early and put time on your side. You will have more years to grow your savings by investing. Other factors can also affect how much money your RDSP will pay. Make sure you understand how they work so you can make the most of your savings.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.