Personal Finance

Is it worth contributing to my RRSP if I'm on disability?

  • Last Updated:
  • Dec 10th, 2018 2:51 pm
Tags:
[OP]
Sr. Member
May 28, 2007
770 posts
198 upvotes

Is it worth contributing to my RRSP if I'm on disability?

I started collecting long term disability from my employee work insurance (hospital) and the provincial QPP disability pension at the beginning of 2018. The insurance company payments are nontaxable (just under $1,400/month) and the QPP disability pension is taxable (just over $1,200/month). I'm 56. From my 2017 tax assessment, I have an RRSP contribution limit of about $2,900. I figured if it's just the provincial disability money that's taxable plus about $4,500 in interest income, it's not worth making the RRSP contribution because I'll be in the lowest tax bracket anyway. Am I right in thinking that, or is it still worth it to make the contribution? I already have a decent size RRSP and a hospital pension (which I figure will be a bit lower than what I'm getting now, but will be all taxable) when I stop collecting disability probably at age 61 or 65.

If the insurance company disability payments are nontaxable, do you still have to declare it on your tax return? Then do you get an equal deduction for that amount on another line?

Thanks in advance for your advice.
7 replies
Deal Fanatic
User avatar
Dec 27, 2009
6604 posts
3760 upvotes
Ottawa, ON
You do not have to claim non-taxable disability payments on your income tax return (by non-taxable, I assume you were the one who paid the premiums and not your employer). That is how we have things set up in our workplace too. The employee pays 100% of their disability premium and we (the employer) split the cost of any other benefits. It is set up that way so that if an employee ever has to make a disability claim, then it won't need to be taxed for them.

As for the RRSP contribution, my gut says it really isn't worth it at your income level. I would just save in a TFSA if you want to.
Deal Addict
Oct 22, 2015
1134 posts
306 upvotes
UrbanPoet wrote:
Dec 10th, 2018 10:53 am
Are you eligible for the disability tax credit?
If so... you can make use of an rdsp and recieve grants
I think rdsp has age limit if 50
[OP]
Sr. Member
May 28, 2007
770 posts
198 upvotes
UrbanPoet wrote:
Dec 10th, 2018 10:53 am
Are you eligible for the disability tax credit?
If so... you can make use of an rdsp and recieve grants
I looked into that, but as wra45mon said, the age limit is 50 to get the government portion of the money. So it wasn't worth it for me to do it.
[OP]
Sr. Member
May 28, 2007
770 posts
198 upvotes
Chickinvic wrote:
Dec 10th, 2018 10:36 am
You do not have to claim non-taxable disability payments on your income tax return (by non-taxable, I assume you were the one who paid the premiums and not your employer). That is how we have things set up in our workplace too. The employee pays 100% of their disability premium and we (the employer) split the cost of any other benefits. It is set up that way so that if an employee ever has to make a disability claim, then it won't need to be taxed for them.

As for the RRSP contribution, my gut says it really isn't worth it at your income level. I would just save in a TFSA if you want to.
Correct. That's how it works at our workplace too. I spoke to the union rep and the person from the insurance company. The former said to stay on disability till 65 if you can, but the insurance company can obligate you to take your hospital pension once you're able to take it without penalty, which for me would be at age 61. At that time, if the amount of the pension is less than what I was getting on disability, then they can cover the difference till I'm 65 as long as I'm unable to work.

I'm wondering if I should slowly liquidate my RRSP to stay in the lowest tax bracket before I reach, or if I reach, 71to have to convert it to a RRIF. Since all I'm getting is the provincial disability pension and interest income that's taxable. Once I take my hospital pension, QPP, and OAS, I'll end up in a higher tax bracket if I have to include withdraws from my RRSP or RRIF.
Deal Fanatic
User avatar
Dec 27, 2009
6604 posts
3760 upvotes
Ottawa, ON
Yes, you might want to think about withdrawing from the RRSPs earlier since in your case your income will be going up (and not down) when you are older.

Top