Every year, an RDSP holder gets an update about how much money can be put into their RDSP. The Statement of Grant Entitlement, says how much money and how much the government will match, with a Grant.
As you can see this is an important piece of information. I now know, in 2021, I can deposit $1000 in my son’s RDSP and it will be matched with $1000 in grants.
This amount will increase once my son is over the age of 17, as the income they will use to determine the grant will be his income, instead of our household income. When he turns 18, his grants should be much higher, due to his estimated income at that age.
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.
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.
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.
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.
Let me preface this with, this stuff is complicated. I have read over the documentation, and this is my interpretation of what I have read. While it is important to have rules to ensure systems are not abused, this is a bit extreme. The SDSP (Specified Disability Savings Plan) is one of the exceptions possible in the RDSP program, keep that in mind. If you are unsure, call for help.
The Registered Disability Savings Plan (RDSP) has strict rules for withdrawals. The rules ensure that the RDSP “…cannot be used like a chequing account…”. That was a direct quote from an ESDC source.
I will be writing more about this, in the near future.
“Whenever money is withdrawn from an RDSP, all or part of the grants and the bonds that have been in the RDSP for fewer than 10 years must be repaid to the Government. You must repay $3 for every $1 that is taken out, up to the total amount of grants and bonds paid into the RDSP in the last 10 years. Repayments to the Government of Canada will be applied starting with the oldest grants and bonds paid into the plan first, and then towards the newest.” — ESDC RDSP Withdrawal page
Specified Disability Savings Plan SDSP
The specified disability savings plan SDSP, is a clause in the RDSP for disabled people with a shorter life expectancy. It allows families dealing with the imminent death of a loved one to extract money (early) from an RDSP (without penalties).
To get an SDSP, the beneficiary must have an RDSP. A Doctor must attest the holder of the RDSP will most likely die within 5 years. The RDSP holder then must elect to convert their RDSP to an SDSP, and ESDC must approve this election.
Once the RDSP changes to an SDSP no further money can be deposited in the account. If money is deposited, the SDSP will revert back to an RDSP. In this instance all associated early withdrawal penalties, would come into play.
The maximum that can be taken out per year from the fund is $10,000.
This lowers your risk in life and gives you choices.
Put money in your TFSA.
My opinion is that this is a good place to put your money. How you invest it, is up to you. It should be within your Risk tolerances. Whether you want to buy stocks, Index Funds, ETFs or mutual funds is up to you. Do this in a trading account. In a trading account you can buy all those savings vehicles. In a Mutual Fund account, you usually can only buy Bank or Insurance company (read high MER) funds.
TFSA until you reach your limit. You find that in your My CRA Account (limit as of start of current year).
Do you have Kids? If you do, maybe it is time to think about an RESP? This could be, before (2). The Registered Education Savings Plan will help your child’s future. You may decide you don’t want to do this, so you could skip this step.
The RDSP can only be opened once the CRA grants the DTC (and yes they can deny it at a later date, depending on things).
You can do it yourself, don’t use the “helping firms” out there. So many different medical folks can help with this (e.g. Nurse practitioners)
What is a Registered Disability Savings Plan? Lots of parts to it.
The government has designed this as a very long term savings plan (until someone turns 60 is the goal). Employment and Social Development (ESDC) are the policy setters for the program. Check their web site for information.
A program’s maximum contributions over the life of the RDSP, $200K
The total grants paid per year will be $3500 and a total of $70K throughout the life of the plan.
The entire program’s maximum age for someone to apply for an RDSP, should be 49 years old, since at 59 they can no longer contribute to it.
The plan can start paying out at age 60.
It can pay out earlier in extenuating circumstances
The RDSP turns into a Specified Disability Savings Plan, when someone has a Doctor write a medical certificate stating that the payee will most likely die with in the next 5 years.
These funds in the RDSP should not be part of any Bankruptcy. I have been assured by the ESDC that this is the case, however, the bankruptcy law does not mention Registered accounts in general and the RDSP in specific as exempt.
Opening an RDSP
Who offers something other than a Bank Mutual Fund based RDSP? Currently most banks offer versions of the RDSP, however, few offer much flexibility.
TD Waterhouse (Directline) is where I currently invest. It offers complete flexibility in terms of where money can be invested (e.g. ETFs, Stocks, GICs, etc.,)
Typically the grants offered are based on the parents income, until the child turns 18. After that the level of grants will be based on the childs income
Canada Disability Savings Grant (CDSG) is a response to a deposit in the account, the amount of the grant (and the maximum value for the year), is set every year in the Statement of Entitlement.
Canada Disability Savings Bond (CDSB), an amount paid yearly into the RDSP for extremely low income beneficiaries. If you have low income, and RDSP is still a good option for long term savings.
Disability Assistance Payment, is a withdrawal. It is a payment made from an RDSP to the beneficiary or their estate.
DAPs typically will have AHA involved, as penalties, for early withdrawals.
This is one of the instances where money can be taken out of an RDSP early.
Specified Disability Savings Plan (SDSP) happens when the beneficiary has a short life span (less than 5 years), and this must be certified by a Medical Practitioner (Doctor or Nurse Practitioner).
This is reversible, however, there is a lot of work that needs to be done in that case.
Primarily Government Assisted Plan is an RDSP where most of the funds contributed to it, was from the Government. This RDSP scenario has many rules about early withdrawals (which can happen, but may not be worthwhile).
These are the penalties for taking money out early.
Assistance Holdback Amount, the penalties paid if someone attempts to withdraw money early. Typically it is $3 for each dollar withdrawn, up to a maximum of the amount of Grants paid into the RDSP for the past 10 years.
In the case of a PGAP, there are even sterner rules.
There is a methodology for getting funds out earlier than at age 60, but it is quite complex, and assumes a 10 year plan before doing the withdrawal.
British Columbia Autism
Milburn Drysdale’s site is the go to for RDSP information, especially if you live in BC.