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“Whenever money is withdrawn from an RDSP, all or part of the grants and the bonds that have been in the RDSP for fewer than 10 years must be repaid to the Government.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.
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.”
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,
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.”
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 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.