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Although not very well known to the general public, for those individuals that qualify, a Registered Disability Savings Plan (RDSP) is one of the most generous government assisted savings vehicles available.

If you are under the age of 60, a Canadian resident, and eligible for the Disability Tax Credit, you qualify to open a Registered Disability Savings Plan. The plan was introduced by the Canadian government in 2007 and is designed to help Canadians that suffer from a disability save for future needs. The plan can include parents setting up a fund to plan for the financial security of a child, or any individual up to the age of 59, save for the future on a tax deferred basis.

So how does one open a RDSP? If you meet the criteria above you are eligible to set up a plan. A great starting point is to visit your financial advisor and have them walk you through the details and assist you in completing the application.

If the beneficiary is a minor, the account must be established by a parent, legal guardian, or an institution that is legally authorized to act for the beneficiary. The same applies for an adult who reached the age of majority, but not able to legally enter into a contract.

The person who opens the plan is referred to as the account holder. The account holder can make contributions to the plan themselves, or by providing written permission, allow anyone to contribute to the plan on behalf of the beneficiary. This could include, but is not limited to, parents, grandparents or family friends.

Although there are not annual limits, there is a lifetime contribution limit of $200,000. (Not including grants or bonds).

Who much does the government contribute? The government will match the first $500 invested at a 3:1 ratio for families with less than $74,357 in income and 2:1 for the next $1,000 in contributions for a maximum of $3,500 annually until age 60. Grants are also available for those with income above the $74,357 threshold, but at a 1:1 ratio for the first $1,000 contributed. Both scenarios allow for a maximum grant contribution of $70,000.

So, for a family whose annual income is $60,000, a contribution of $1500 per year (or $125 a month) would allow the government to kick in another $3500 - every year!

Even those who can't contribute can take advantage of the money-matching system. If their income is less than $21,287 they will receive a $1,000 bond every year just for opening an account. For family income between $21,287 and $38,832, they would still be eligible for a portion of the $1000 bond based on a formula described within the Canada Disability Savings Act. The contribution eligibility is determined by your family's net-adjusted income until you turn 18 and then it switches to your own income, regardless of whether you still live with your parents as an adult. The lifetime contribution limit is $200,000, not including the $70,000 grant limit and the $20,000 bond limit.

The contributions are not tax deductible and can be made up until the end of the year the beneficiary turns 59. The funds within the plan grow tax-deferred, and generally speaking, can hold any investments that would qualify to be held within an RRSP or a TFSA.

Payments can only be made to the beneficiary and can me made in two ways; A Life time Disability Assistance Payment (LDAP) or a Disability Assistance Payment (DAP).

The basic difference between the two is that LDAP payments are recurring annual payments that once started must be paid each year until either the beneficiary has died or the plan is terminated. DAP payments are lump sum payments that can be withdrawn as soon as the beneficiary reaches the age of 28 based on a formula laid out under the act.

There are no restrictions on how the funds are spent and may be used to fund disability or non-disability expenses alike.

Income tax is only paid on the earnings portion of the investments and is paid at the beneficiary's marginal tax rate.

Another piece is good news is that in most provinces, payments form a RDSP plan will not impact any other federal or provincial programs.

The RDSP must be collapsed by December 31st following the first full calendar year that the beneficiary passes away. Any funds remaining within the plan, less any grants or bonds paid by the government within the last 10 years preceding the beneficiary's death, are paid out to the estate.

The information provided on RDSPs is designed to give one a general overview of the plan. Please discuss with a professional the specifics of the plan and how much government grant or bond contributions that you would be eligible for in your particular situation.

The Registered Disability Savings Plan can be a powerful tool in helping to create peace of mind for the future.

The information in this article is not intended to constitute legal, financial planning or investment advice, and it may not be relied upon for such. Please seek specific professional advice with respect to your particular circumstances, as each client's financial situation is unique and solutions may vary. The strategies discussed herein are general. Mutual funds are not guaranteed and their values fluctuate on a daily basis. Investments may decline in value and investors may or may not receive back the original amount invested.