Do you take the grants when they are a child, or do you wait until the grants are larger? Note this is really for parents of disabled children or loved ones under the age of 18.
I have been asked this question a couple of times. What we did was deposit the max that would be matched for my son every year. As I have mentioned in the RDSP Grant entitlement articles every year, it is only $1000 that is matched. This is the actual documentation from the government.
Why Not Wait?
Given the paltry amount put in, why not wait? I guessed that $18,000 deposited, plus $18,000 in grants and then the growth is a good start. We were fortunate that the market from 2008 to now has been insane. The growth aspect of the RDSP has been nothing short of wonderful. In our case, I think it has worked out for the better.
In Early or Later
An overly simplified model would be the following comparison. For both let’s use a conservative growth of 3% per year. Remember the maximum grants for an RDSP is $70,000.
There are bonds available for lower-income folks, and the grants at younger ages can be higher for lower-income families, too. This model can be very different for every family. I will stick with this simplified model.
Scenario 1 Start Early
- Assume the family has an RDSP set up for the first 18 years of the child’s life.
- The parents make enough that the only grants available are $1000, matching a $1000 deposit.
- After the child turns 18, their grants rise to $3000 with a matching $3000 deposit. The grants can be up to $3500 a year (currently).
Scenario 2 Start Later
Assume the RDSP is set up at age 17, and starts when the child turns 18. That is when deposits start, and we will use the same $3000 deposit and $3000 grant model.
If we use those numbers and set up a simple spreadsheet, we see the following:
| Assumed Growth | 3% | |||
| Max Grant | $ 70,000.00 | |||
| Age | Start Early | Total Grant | Start Later | Total Grant |
| 1 | $ 1,000.00 | $ 1,000.00 | ||
| 2 | $ 2,030.00 | $ 2,000.00 | ||
| 3 | $ 3,090.90 | $ 3,000.00 | ||
| 4 | $ 4,183.63 | $ 4,000.00 | ||
| 5 | $ 5,309.14 | $ 5,000.00 | ||
| 6 | $ 6,468.41 | $ 6,000.00 | ||
| 7 | $ 7,662.46 | $ 7,000.00 | ||
| 8 | $ 8,892.34 | $ 8,000.00 | ||
| 9 | $ 10,159.11 | $ 9,000.00 | ||
| 10 | $ 11,463.88 | $ 10,000.00 | ||
| 11 | $ 12,807.80 | $ 11,000.00 | ||
| 12 | $ 14,192.03 | $ 12,000.00 | ||
| 13 | $ 15,617.79 | $ 13,000.00 | ||
| 14 | $ 17,086.32 | $ 14,000.00 | ||
| 15 | $ 18,598.91 | $ 15,000.00 | ||
| 16 | $ 20,156.88 | $ 16,000.00 | ||
| 17 | $ 21,761.59 | $ 17,000.00 | ||
| 18 | $ 23,414.44 | $ 18,000.00 | ||
| 19 | $ 27,116.87 | $ 21,000.00 | $ 3,000.00 | $ 3,000.00 |
| 20 | $ 30,930.37 | $ 24,000.00 | $ 6,090.00 | $ 6,000.00 |
| 21 | $ 34,858.29 | $ 27,000.00 | $ 9,272.70 | $ 9,000.00 |
| 22 | $ 38,904.03 | $ 30,000.00 | $ 12,550.88 | $ 12,000.00 |
| 23 | $ 43,071.16 | $ 33,000.00 | $ 15,927.41 | $ 15,000.00 |
| 24 | $ 47,363.29 | $ 36,000.00 | $ 19,405.23 | $ 18,000.00 |
| 25 | $ 51,784.19 | $ 39,000.00 | $ 22,987.39 | $ 21,000.00 |
| 26 | $ 56,337.71 | $ 42,000.00 | $ 26,677.01 | $ 24,000.00 |
| 27 | $ 61,027.85 | $ 45,000.00 | $ 30,477.32 | $ 27,000.00 |
| 28 | $ 65,858.68 | $ 48,000.00 | $ 34,391.64 | $ 30,000.00 |
| 29 | $ 70,834.44 | $ 51,000.00 | $ 38,423.39 | $ 33,000.00 |
| 30 | $ 75,959.47 | $ 54,000.00 | $ 42,576.09 | $ 36,000.00 |
| 31 | $ 81,238.26 | $ 57,000.00 | $ 46,853.37 | $ 39,000.00 |
| 32 | $ 86,675.41 | $ 60,000.00 | $ 51,258.97 | $ 42,000.00 |
| 33 | $ 92,275.67 | $ 63,000.00 | $ 55,796.74 | $ 45,000.00 |
| 34 | $ 98,043.94 | $ 66,000.00 | $ 60,470.64 | $ 48,000.00 |
| 35 | $ 103,985.26 | $ 69,000.00 | $ 65,284.76 | $ 51,000.00 |
| 36 | $ 70,243.31 | $ 54,000.00 | ||
| 37 | $ 75,350.61 | $ 57,000.00 | ||
| 38 | $ 80,611.12 | $ 60,000.00 | ||
| 39 | $ 86,029.46 | $ 63,000.00 | ||
| 40 | $ 91,610.34 | $ 66,000.00 | ||
| 41 | $ 97,358.65 | $ 69,000.00 | ||
| 42 | ||||
| 43 | ||||
| 44 |
Elementary Analysis
Some conclusions can be made.
- The early start means the beneficiary will hit maximum grants much sooner. The model is flawed because deposits would continue after reaching maximum grants. The maximum contribution limit for an RDSP is $200,000.
- A comparison shows only about $6000 overall difference once Maximum grant level is reached.
There are plenty of flaws in my model. In the end, I think the reasonable answer to the question, “Should we contribute early to the RDSP” is, “it depends”. I realize I use that answer a lot so let me elaborate a little.
- If you can afford to put money in early on, do it.
- Putting $200K in at the start might minimize your grants, but it would maximize your growth period. I doubt many folks do this.
- For lower income families bonds will be paid into the RDSP. The Bonds can be up to $1000 annually and a maximum of $20,000 over the beneficiary’s life. This may trigger an “Early Deposit” scenario.
- This is a very long term savings plan, so withdrawals are discouraged with high penalties.
There are many folks that write about this topic, and lots of documentation from the Government about the RDSP program.
Related RDSP Pages
- The RDSP Page is the Overview of all articles I have written about the RDSP (including DTC and other areas).
- RDSP : Laying the Ground Work (first things first)
What needs to be done BEFORE you can apply for a Registered Disability Savings Plan? A major aspect of this is the Disability Tax Credit (DTC). Make sure you click on this page to get started. - RDSP : Working with The Account
Now that you have succeeded in getting your Disability Tax Credit (DTC) you need to open an RDSP account with a bank, but how is that done? It is not as easy as you might think. This page outlines many issues that have arisen for my family working with an RDSP account. - Disability Tax Related Topics
Thanks to my RDSP and DTC work I then had to learn a great deal about the tax implications of having a disabled child. - Autism Specific Articles
Being the proud Father of a child on the Autism Spectrum, I also ended up writing a great deal about Autism specific things as well.
- RDSP : Laying the Ground Work (first things first)
You already point out that this is a very simple scenario. But I will point out two things to consider in starting late. The fact is that you are invited by the government to make greater contributions to what they call ‘buyback’ past eligible government matching contributions, and you can go back up to 10 yrs or get a max of $10.500 government matches in any given year. So, using your simple example, assuming only ever qualifying for 1:1 matching, yr 1 in the late contribution scenario, would allow you to contribute $10,000, instead of only $3000.
Also, as of age 19, the contribution room would be based on the child’s income, instead of the parent’s income (which requires the child to file tax returns starting at age 17, because the government bases contribution based on income on the tax return 2 years prior). According to their formula, unless they are earning above the threshold (in $2023 it is over $106,000), they qualify for the full higher level matching; the first $500 contribution qualifies for a 3:1 match for $1,500 in grants, and the next $1,000 qualifies a 2:1 match for an additional $2,000, or a total of $3,500 (using only $1,500 in contribution).
The subsequent $1,500 (of the $3,000 contributions) would not qualify for any matching, unless there are qualifying outstanding buybacks. Continuing with your example, and assuming only 1:1 matching buyback opportunities, which are based on the parent’s income, the would be an additional $1,500 grant matching. This therefore yields a total of $5,000 grant matching ($3,500 + $1,500) for the $3,000 contribution each year. This would continue for 6 yrs (6 x $5,000) and the 7th yr there would only remain $1,000 in outstanding buyback. So, that year, the $3,000 contribution would yield matching grants totalling $4,500, from $2,500 in contribution, where the last $500 in contribution would not qualify for any matching.
So, after 7 years, the total contributions would be $21,000 but the total grants matched would actually be $34,500, for a total of $55,500, which exceeds your early start scenario, and this does not even include the 3% annual return.
So, unless I have made a mistake in my calculations, I submit that starting later, when the grant matching qualifies for the higher matching rates might be a somewhat better choice.
Hence my statement, “… it depends…”
Another important consideration is that the earliest withdrawal that can be made without penalty is 10 yrs after the last government contribution, be it grant or bond or reaching age 59, which ever is first. This is aside for exception rules allowing for early withdrawal. This 10-yr rule effectively resets the countdown clock before a withdrawal can be made. This is also an incentive to contribute as early as possible.
That said, it is possible to opt out of further government contributions using the Revocation Form EMP5490. Why? One reason is to stop the countdown clock, which would be useful if the benefactor would likely not qualify for a period of time (e.g. too much income, etc), and avoids resetting the clock.
Withdrawals can also be made if the recipient has medical proof that they will not live much longer.
As I continue to comment, this is a VERY Long Term savings plan.
yes, that is what I was referring to when I mentioned “exception rules allowing for early withdrawal”