The Registered Disability Savings Plan (RDSP)

A question faced by loved ones who care for family members that suffer from disabilities is, “How will I protect them once I am gone?” The Registered Disability Savings Plan (RDSP) is one solution to protect their long-term financial security. 

The RDSP program was established by the federal government in 2008 to encourage people with disabilities and those who care for them to save and become more financially secure. What makes RDSPs so attractive is that you can earn generous government grants and bonds which can significantly boost the assets accumulated within the plan. 

Eligibility

In order to qualify for an RDSP, you must have a long-term disability (physical or mental) and be eligible for the Disability Tax Credit. You also need to be under the age of 60 and a Canadian resident with a social insurance number. Parents or guardians may open an RDSP for a child under the age of majority. 

Government Grants and Bonds 

There are two types of government incentives for RDSPs. 

The Registered Disability Savings Grant can provide a matching grant of up to 300% depending on the amount contributed and the beneficiary's family income. The maximum annual grant is $3,500 with a lifetime limit of $70,000. Grants are paid into the plan until the end of the calendar year in which the beneficiary turns 49 years of age. 

The Canada Disability Savings Bond is an additional benefit for low-income Canadians with a family net income of less than $43,561. If you qualify for the bond, you will receive up to $1,000 a year. The maximum amount of bond payments is capped at $20,000. Bonds are paid into the plan until the end of the calendar year in which the beneficiary turns 49 years of age. 

Your RDSP provider will apply for the grants and bonds on your behalf after the RDSP account is open. Unused grant and bond entitlements from the past ten years (starting in 2008) can be claimed for existing RDSPs or RDSPs opened in January 2011 or later. Grants and bonds on unused entitlements are paid to annual maximum of $10,500 in grants and $11,000 in bonds. 

Withdrawals

The beneficiary must begin receiving payments from the plan by the end of the year that they turn 60. These payments are subject to maximum annual limits based on life expectancy, the age of the beneficiary and the value of the plan assets. A withdrawal from an RDSP is called a payment and there are two types of payments; Lifetime Disability Assistance Payments (LDAPs) and Disability Assistance Payments (DAPs). 

LDAPs are regularly scheduled payments (monthly, annual etc.) and must begin when the beneficiary turns 60, but can begin at any age. These payments are limited by a government formula when government contributions exceed personal contributions. 

DAP payments may be scheduled or unscheduled. If personal contributions exceed those of the federal government then the payments are not governed by the LDAP formula. That means the full amount of the RDSP (minus any holdback) may be withdrawn. If personal contributions are less than the government contributions, the same LDAP formula will apply. 

Holdback Amount (Ten Year Rule) 

One cautionary note about grants and bonds: If any payment are made from an RDSP, then the holdback amount is payable to the federal government. The holdback amount is the total amount that the federal government has contributed to the RDSP in the preceding ten years. After ten years, the holdback amount is zero and payments may be made without repaying any funds to the government. This "ten year rule" acts as a powerful incentive to save and resist making withdrawals within the first ten years. 

How Are Government Benefits Affected? 

Money paid out of an RDSP does not affect eligibility for other federal benefits such as the Child Tax Benefit, the Goods and Services Tax Credit, Old Age Security or Employment Insurance. In addition, all provinces and territories have exempted RDSP income and assets either in part or in full (100% exempt in BC) for the purpose of assessing eligibility for provincial and territorial programs and services. If you are a person with a disability or provide care to someone with a disability, you can contact one of our advisors to see if an RDSP makes sense for your situation.