Who knew that this time of year had so many financial events? You have the RRSP deadline, tax preparation time and for some another important event. At the beginning of February I receive the Annual RDSP Statement of Grant Entitlement from my son’s RDSP.
What is the RDSP Statement of Grant Entitlement ? It is the yearly statement from the Government that states the maximum grant available for the year and the amount I need to deposit in my son’s account to receive the grant.
If you receive this you will see the following box that explains all things in terms of contributions and grants.
From this simple table we can deduce so much information about the RDSP grant program.
- My son is receiving the minimum grant for this year of $1000. This is due to my family income being at the top of their scale (but not that high in my scale). In the future it will be based on my son’s income (after he turns 18). If the Max Grant available was $0 (Zero) it would usually mean the holder is no longer eligible for grants.
- The maximum grant he could receive this year would be $10,500, which might be possible after his income is the trigger for grants.
- We need only contribute $1000 to my son’s RDSP to receive the $1000 grant (thus a 100% grant).
The income level that the grant is based on uses the previous years CRA submission. My son’s income level won’t be used until he turns 19, but then his grant potential will increase notably.
What isn’t mentioned is the the limit of $70,000 in grants over the lifetime of the RDSP holder. This suggests (for me) a strategy of waiting until my son turns 19 before making large additions to the RDSP. This strategy should allow him to receive the maximum grant level.
Also not mentioned is Grants are paid into the RDSP until the end of the year my son turns 49 years of age.
The maximum contributions for the lifetime of the RDSP is $200,000 overall contribution.
Finally the Canada Disability Savings Bond is also not mentioned, because of my family income. For those with lower incomes, this is a reason to open an RDSP even if you don’t have much money to put into it.
Remember my son’s RDSP is currently being held in a TD Direct Investment RDSP.
Please Come Back
As part of my infamous back-log of unfinished essays, I have many more on this subject and other RDSP related topics, so please come back soon.
The Government Web-site on the topic: InfoCapsule 12: Carry forward of grant and bond entitlements.
I recently read that if you max the max contribution in one year you will only receive grants and bonds you are eligible for that year. The following year you might not get grants as you haven’t made any contribution.
Can you elaborate on this? If I put in $1000 I will get the grants & bonds due my son this year. Next year, how much will be paid is based (currently) on my family income. When my son turns 18 (17?) then it will be based on my son’s income.
I’m sorry I don’t quite understand your point?
Sorry, I meant if you max out the life time contributions. 🙂 There will be no contributions by the government subsequent year.
As always, an insightful post. I believe that the government uses information from the second preceding year to calculate RDSP entitlements. When your son becomes an adult, CRA will refer to his tax returns to calculate eligible grants and bonds. In order to achieve maximum funding you will need to file tax returns on his behalf starting at age 17.
As usual a very good point made. I was at a presentation which said that precise thing (but given my memory I had forgotten), but thank you for your insight on this. Surprisingly the Grant Entitlement is based on data directly from the CRA so it is correct, but yes I believe it is 2 years previous information.
yes you are right … current year of bond and grant calculation is based on cra income tax declaration from 2 yrs prior …
It’s funny how you’ve received the statement at beginning of February but I didn’t get mine until yesterday. Due to some changes, I’ve had to adjust my contribution amounts slightly. Not a big deal but would have been nice to have known earlier in the year.
If you stop contributing to the RDSP until the year your son turns 19 and then restart contributions that year, each dollar you contribute will attract more Grant money. But when I have run the numbers, if you continue to contribute until the year he turns 19 and invest the money thoughtfully (which I know you do!) you should still be better off. Either way, you would still be able to collect the full $70,000 in Grants.
About the $200,000 maximum contribution limit…this limit applies to personal contributions, only. Government Grant and Bond contributions are not included in the $200,000 maximum.
In my case only contributing up the maximum grant level will work fine for now, but yes, when he turns 19, that is when the grants will increase. Good point about the maximum contribution limit being only for contributions not grants, bonds, or growth.