RDSP after DTC Lost

in Registered Disability Savings Plan

Federal Budget 2019 announced that loss of DTC would no longer be a reason to close a RDSP and repay grant and bond.  The budget also stated that the measure would start as of budget day, March 19, 2019.  Any plan that had not yet been closed due to loss of DTC as of the budget, could remain open in the interim until the measure became law.

The legislation had been drafted, and was to be part of Budget 2020 in late March.  However, there was an interruption, and the budget was never tabled.  This interim measure remains in effect until January 1, 2021.

RDSP holders who lose DTC eligibility

As of the 2020 Fall Economic Fiscal statement this has been clarified. The new rules come into force or are deemed to have come into force on January 1, 2021.

How does it work?

If a beneficiary loses DTC before the end of the year they turn 59, the plan can remain open but contributions are no longer allowed to be made nor is grant or bond paid.  The loss of DTC also sets the AHA window (Assistance Holdback Amount window) , which becomes ten years prior to loss of DTC.

If the loss happens before the end of the year the beneficiary turns 50, the AHA period is the ten previous years from Jan 1.  It remains this period until Jan 1, of the year the beneficiary turns 51, when it becomes 9 years; Jan 1 of the year the beneficiary turns 52, 8 years; and so on.  The end of the year the beneficiary turns 59 (Jan. 1 of the year the beneficiary turns 60) it becomes zero.

So, if you lose your DTC at age 35, and wish to take out money from your RDSP (before you turn 60), there are penalties.

Early RDSP Withdrawal Graphic
You Lose A Lot With an Early RDSP Withdrawal

Whenever you take money out of the plan, you will be subject to one of the following repayment rules:

1) return $3 of government grant and bond for every $1 that you withdraw from the plan (proportional repayment rule), or

2) return all the government grant and bond you have received in the AHA Window Period; whichever of these two amounts is less.

From RDSP: A Very Long Term Savings Plan

If the beneficiary loses DTC the year they turn 51 or older, the AHA is the ten prior years from Jan. 1, and each subsequent year it is the ten years prior to Jan. 1, until the end of the year the beneficiary turns 59 (Jan. 1 of the year the beneficiary turns 60), when it becomes zero.

What Happens to the Funds?

While there is an AHA amount, it is repaid if the plan is closed or the beneficiary dies, and any withdrawal triggers a repayment at 3 to 1 up to the amount of the AHA.

The year the beneficiary  turns 60, LDAPs commence as normal.

Why the Change?

One of the reasons for this change in rules is there is an assumption about the DTC Holder. Given the person with the DTC qualified once, they may be able to re-qualify for the DTC at a later date.

Complicated?

Yes, as I have said before, this system is complicated, but still vital.

{ 1 comment }

  • smayer97 December 2, 2020, 11:59 AM

    Thanks for the article.

    Reply

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