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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 If money is withdrawn before this time, all or part of the government contribution must be repaid to the government.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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Why an RESP for a Disabled Child ?

I have set up an RESP for my son. For those who don’t remember my son is on the Autism Spectrum, so why would I not put money into this RDSP, instead of an RESP? There are a few reasons for an RESP for a disabled child.

RESP for a disabled child


There can be many reasons that an RESP is still a viable savings plan for parents of disabled children, and here are a few to consider.

Child Can Attend Post-Secondary Programs

If your child is not mentally disabled, or can cope with a post-secondary program, then an RESP is a good way to plan for their post-secondary education. In our case my son may be able to go to College, University or other training programs. Having an RESP is simply a good plan for his future.

CESG Can Pay Well

As my son’s RDSP Disability Savings Bond is calculated against my family income, currently the DSB payment is quite low. When my son reaches his 18th birthday the DSB will be calculated against his income, so the pay out for money deposited into his RDSP will be higher.

While the CESG portion of the RESP is also calculated based on my family income, it still pays well. I get 20% pay back up to $2500, so $500 every year is pretty good payback for an investment.

RESP Can Be Rolled into RDSP

There is a way to transfer money from an unused RESP to an RDSP. Is this the best thing to do with the RESP if it is unused is an open question. My RDSP expert said it would be better to collapse the RESP, pay back all grants and pay tax on any growth, and then add the remaining moneys into an RDSP. I will investigate that concept some more as my son gets closer to University age.

Your Situation May Vary

Depending on the situation, what is working for me (in my opinion), may not work as well for your family. I would do the research and look at the arithmetic about whether it is worthwhile setting up both an RDSP and an RESP for your disabled child. If you can only afford 1 savings plan, make sure the RDSP is dealt with first. If your income is low, remember the Canada Learning Bond might be available to your kid’s RESP, and that pays if you put in minimal amounts.

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RDSP Statement of Grant Entitlement

Who knew that this time of year had so many financial events? You have the RRSP deadline, tax preparation time and for some another important event. At the beginning of February I receive the Annual RDSP Statement of Grant Entitlement from my son’s RDSP.

What is the RDSP Statement of Grant Entitlement ? It is the yearly statement from the Government that states the maximum grant available for the year and the amount I need to deposit in my son’s account to receive the grant.

If you receive this you will see the following box that explains all things in terms of contributions and grants.

RDSP Statement of Grant Entitlement
RDSP Statement of Grant Entitlement for my Son

From this simple table we can deduce so much information about the RDSP grant program.

  • My son is receiving the minimum grant for this year of $1000. This is due to my family income being at the top of their scale (but not that high in my scale). In the future it will be based on my son’s income (after he turns 18). If the Max Grant available was $0 (Zero) it would usually mean the holder is no longer eligible for grants.
  • The maximum grant he could receive this year would be $10,500, which might be possible after his income is the trigger for grants.
  • We need only contribute $1000 to my son’s RDSP to receive the $1000 grant (thus a 100% grant).

The income level that the grant is based on uses the previous years CRA submission.  My son’s income level won’t be used until he turns 19, but then his grant potential will increase notably.

What isn’t mentioned is the the limit of $70,000 in grants over the lifetime of the RDSP holder. This suggests (for me) a strategy of waiting until my son turns 19 before making large additions to the RDSP. This strategy should allow him to receive the maximum grant level.

Also not mentioned is Grants are paid into the RDSP until the end of the year my son turns 49 years of age.

The maximum contributions for the lifetime of the RDSP is $200,000 overall contribution.

Finally the Canada Disability Savings Bond is also not mentioned, because of my family income. For those with lower incomes, this is a reason to open an RDSP even if you don’t have much money to put into it.

Remember my son’s RDSP is currently being held in a TD Direct Investment RDSP.

Please Come Back

As part of my infamous back-log of unfinished essays, I have many more on this subject and other RDSP related topics, so please come back soon.

The Government Web-site on the topic: InfoCapsule 12: Carry forward of grant and bond entitlements.

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Apply for the DTC Please

I have spoken with a few folks who have convinced themselves they can’t get the Disability Tax Credit (DTC) so they won’t apply for the DTC. Given the stories lately about the CRA rejecting many applications, and how complicated the process is, many folks are not applying (when they should be applying).

Allow me to be clear, apply, fill in all the forms and let the CRA decide. If you don’t apply, you will never get the DTC.

Do the work, make sure you fill in the forms well, get all the help you can, but apply, please!

To paraphrase Wayne Gretzky you will receive 0% of the DTC applications you never send.

Without a DTC there is no RDSP, and while the Disability Tax Credit is not a large credit, it is still vital to have it to be able to get other services and help from the government. It is not easy to navigate the government red tape, but it is the most important thing you can do for your child or your loved one.

Apply for DTC

Should you Apply for the DTC ?

If you or your loved one has a disability recognized by the CRA or on their list, then yes is the answer.

Let me repeat my message, if you don’t apply you will not get the Disability Tax Credit, if you do apply you might (but if you don’t ask the answer is always NO).

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