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More RDSP Talk

A while ago I spoke with Tom Drake at Maple Money about the DTC and RDSP. After some judicious edit’ing Tom has published the Podcast here. As usual you can read about the RDSP on my Registered Disability Savings Plan page.

For those unaware there are a bunch of very smart folks that I use for research on this topic (my wife being a major contributor), and whenever I do one of these talks, I get a few things not quite right (and this is no difference). My source at ESDC (who is very patient and kind) points out a few of my fumbles: I mention that the program is 10 years old, it was started in 2008, so that is a 12 years in 2020.

RDSP and Bankruptcy

Doug Hoyes and I have discussed (on his Podcast) about the topic of RDSPs and bankruptcy, but my source now states clearly:

“The Bankruptcy Act was changed last year through the Budget Implementation Act.‎ See 67(1)(b.3) of the Insolvency and Bankruptcy Act.”

ESDC Source

134 Paragraph 67(1)‍(b.‍3) of the Act is replaced by the following:(b.‍3) without restricting the generality of paragraph (b), property in a registered retirement savings plan, a registered retirement income fund or a registered disability savings plan, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy,

Bill C-97

RDSP After DTC Lost

If the beneficiary loses their Disability Tax Credit (DTC), it used to be that the RDSP had to be closed. I waffled around this one with Tom, but the actual answer is:

“As of Budget day 2019, a RDSP n‎o longer is required to be closed due to loss of DTC. During a period when the beneficiary in not DTC eligible no contributions can be made to the plan except for the rollover of funds from a RRSP of a deceased parent or grandparent upon whom the beneficiary was dependent.  During a period of DTC eligibility, the beneficiary will not accumulate annual grant or bond entitlements. The Assistance Holdback Amount will be determined as the ten year period immediately prior to the beneficiary being DTC ineligible, and will remain that period until the end of the year the beneficiary turns 50. Each subsequent year the AHA will decrease by a year. (51-9 years, 52-8 years,… 59-1 year). The year the beneficiary turns 60, the AHA is nil. Should the benficiary requalify for the DTC, the plan will operate as normal.”

ESDC Source

So the money hangs around until the person turns 60 and then can be withdrawn, as Tom Drake pointed out should be the case.

Each time I talk about the Registered Disability Savings Plan and DTC I end up learning more myself.


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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.

Statement of Grant Entitlement
My Son’s Statement of Grant Entitlement

As you can see this is an important piece of information. I now know I can deposit $1000 in my son’s RDSP (this year) 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.

When he turns 18, my son will also have to re-qualify for his Disability Tax Credit as well. This is what we learned from the last time he had to re-qualify.

Previous Posts on Grant Entitlements

  • 2019 Statement of Grant Entitlement
  • 2018 Grant Discussions

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RDSP and Budget 2019

Budget 2019 is finally out, and it has a whole treasure trove of goodies. It is truly an election year budget with promises of the future (if you reelect the current government).

I will allow much smarter folks to comment on other areas, but for Registered Disability Savings Plan there are two nice mentions.

RDSP Exempt from Seizure in Bankruptcies

Doug Hoyes and I talked about this on his podcast, but now it looks to be officially in grained in the system.

“Unlike RRSPs, amounts held in RDSPs are not exempt from seizure by creditors in bankruptcy. To level the playing field, Budget 2019 also proposes to exempt RDSPs from seizure in bankruptcy, with the exception of contributions made in the 12 months before the filing.” 

Budget 2019 Canada

I assume the bankruptcy laws may be changed one day, but this seems quite clear. The past 12 months of payments being not exempt makes sense as well.

RDSP Pay Back if DTC Lost

This has always been a big problem, and with the CRA cancelling DTCs left and right this is a good thing.

“To address concerns that this treatment does not appropriately recognize the financial impact that periods of severe, but episodic, disability can have on individuals, Budget 2019 proposes to eliminate the requirement to close an RDSP when a beneficiary no longer qualifies for the DTC. Doing so will allow grants and bonds otherwise required to be repaid to the Government to remain in the RDSP. To ensure fairness for DTC-eligible beneficiaries, some restrictions on access to these amounts will apply. The estimated cost of this measure is $109 million over five years, beginning in 2019–20, and $33 million per year ongoing. “

Budget 2019

Previously you had a short period of time where you had to pay back all grants and bonds, now you can leave the money there. I assume if you try to take money out you would have to pay back grants and bonds (and pay tax on any growth). There still is a few fine points to clarify here.

RDSP Not Forgotten

Glad to see the RDSP is not forgotten in the budget. Curious to see what the Loyal Opposition has to say about these areas come election time?

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RDSP : A Really Long-Term Savings Plan

The buzz-phrase for investing has always been, “Invest for the long-term”. The RDSP (Registered Disability Savings Plan) is actually designed with that concept in mind. It is a really long-term savings plan, and the penalties set up for early withdrawals enforce this vision.

The way the system is set up, money should go in until the beneficiary reaches age 5759, and then it can act as a source of income for the beneficiary at age 60.

With my latest Statement of Benefits update from the Government, came a very useful example of how early withdrawals work. Given the RDSP is 10 years old, some folks may start thinking about withdrawing money, so they gave an example of how that might work.

I don’t suppose they would mind if I borrowed it to show how early withdrawal penalties work:

Reminder Notice -10-Year Anniversary

From the RDSP statement of benefits I received in 2019, most likely written by the Government of Canada, so blame them if the example seems a little confusing.

As of 2019, some beneficiaries will have had an RDSP for 1O years, and may be starting to think about taking money out of the plan. It is important to remember that the money the government deposited into an RDSP must remain there for at least 1O years after the last government contribution was made to the plan. If money is withdrawn before this time, all or part of the government contribution must be repaid to the government.

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 last 10 years; whichever of these two amounts is less.

Example of Grant and Bond Repayment:

James opened an RDSP in January 2009 and contributed $1,500 that year and for each subsequent year. He also received the maximum grant and bond in 2009 and for each subsequent year. As of January 1, 2019, there are total assets of $65,000 in his plan, which consists of $45,000 in grant and bond, $15,000 in personal contributions and $5,000 in interest/earnings. The assistance holdback amount for his RDSP is $45,000, which is the total amount of grant and bond that the Government has contributed in the past 10 years.

On February 1, 2019, James wants to withdraw $10,000 from his plan. Given the proportional repayment rule, if he withdraws the $10,000 in February 2019, then $30,000 of the grant and bond amount must be repaid to the government. Therefore, if James withdraws $10,000, the grant and bond that would remain in his account after the repayment would be $15,000 ($45,000 – $30,000). This means that the total assets in James’ plan would be reduced to $25,000 (i.e. $65,000 total minus $10,000 withdrawal and less

$30,000 in grant and bond repaid to the government). Below is a graphic representation of what would happen to the overall total assets before and after the $10,000 withdrawal.

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

As you can see, a $10,000 withdrawal will cost $40,000 in this example.

Don’t Take Out Money Early?

There are exceptions for early withdrawals, that I will outline soon. Once the plan recipient turns 60 withdrawals are controlled as well. As usual none of this is straight forward.

For now view the RDSP as a very long-term savings plan.

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Each year we receive an RDSP Statement of Grant Entitlement from the government. This statement tells us how much my son will receive in grants on his RDSP (for this year). There is also a statement about how much money that can be deposited in the account to receive these grants.

I have scanned the main information box that explains this.

RDSP Statement of Grant Entitlement 2019
My Son’s 2019 Grant Story

As you can see this is an important piece of information. I now know I can deposit $1020 in my son’s RDSP (this year) and it will be matched with $1020 in grants.

The reason these amounts are so low, is currently my son is under 18 years old. Due to his age, his “net income” calculation is based on my family income. Once my son reaches age 18 the income calculation that the statement of grant entitlements is based on, will be his income only. At that time, his grants should be much higher, due to his estimated income at that age.

When he turns 18, he will also have to re-qualify for his Disability Tax Credit as well. This is what we learned from the last time he had to re-qualify.

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