How to get the most out of a Registered Disability Savings Plan (RDSP)

What is the Registered Disability Savings Plan (RDSP)?

Like the Registered Retirement Savings Plan (RRSP), the RDSP is a registered savings plan. In both cases, money is deposited over a period of time and the beneficiary enjoys certain incentives.  

But the similarities end here. RRSPs and RDSPs don’t have the same objective, and they don’t provide the same advantages. Let’s compare the two:

RRSPs

• Objective: Save for retirement
• Advantages: Benefit from tax deferrals (the sums contributed to an RRSP grow tax free)

RDSP

• Objective: Save for the future of a person with a disability (you or someone else)
• Advantages: Benefit from grants (the amounts contributed to an RDSP grow tax free)

What are the benefits of an RDSP? 

You receive government grants 

RDSPs are eligible for two different government grants: 

1. Canada Disability Savings Grant (CDSG) 

• How much is it? It can be up to $70,000 (lifetime maximum)
• How do you get it? It’s based on how much is deposited to the RDSP and the beneficiary's family income. 

2. Canada Disability Savings Grant (CDSG)

• How much is it? It can reach up to $20,000 (lifetime maximum) 
• How do you get it? It’s an amount paid to low-income individuals. You don’t have to contribute to an RDSP to receive it, but you must be an RDSP holder.

The calculation of the grant and bond amounts is based on family income. There are also criteria and conditions to be met.  

How do you maximize the grants?

When you open an RDSP, the government sends you a document telling you how much you need to contribute to maximize your grants.

The sums grow tax free (provided they remain in the RDSP)

Registered Disability Savings Plan contributions and grants grow tax free. 

Tax deductions at source

As with RRSPs, a portion of any withdrawal from an RDSP is withheld at source (set aside) to pay taxes. This helps you avoid unpleasant surprises. 

Your RDSP doesn’t affect your eligibility for most other grants and services 

Depending on your income, having an RDSP and receiving grants in the plan doesn’t impact your eligibility for other social programs in most provinces and territories. You can therefore receive the RDSP benefits and still do certain training courses, internships and activities, and receive grants or services. The benefits keep on growing. 

Who’s eligible for an RDSP?

Disability tax credit (DTC)

Only individuals eligible for the disability tax credit (DTC) can open a Registered Disability Savings Plan.  

Someone who becomes ineligible for the DTC because their condition has changed doesn’t automatically have to close their RDSP. If they become eligible again later on, they can start contributing to their RDSP and benefitting from the grants once again.

Other RDSP eligibility criteria

In addition to the DTC, these criteria must also be met to be an RDSP holder:

• Have a valid social insurance number
• Be a resident in Canada
• Be under the age of 60 

What’s the RDSP contribution limit?

The lifetime contribution maximum is $200,000. There’s no annual maximum. Be aware that:

• RDSP grants stop at the end of the year in which the beneficiary turns 49. If their 49th birthday is on January 12, 2032, they can continue receiving grants until the end of that year.
• Contributions must stop at the end of the year in which the beneficiary turns 59. If their 59th birthday is on January 12, 2042, they can continue making contributions until the end of that year. 

How do you withdraw funds from an RDSP? 

There are three main categories of RDSP withdrawals:

• Lifetime disability assistance payments (LDAPs). Withdrawals from the RDSP must begin by December 31 of the year in which the beneficiary turns 60. Lifetime disability assistance payments (LDAPs) take the form of annual recurring payments to the beneficiary. 

Important: The withdrawals cannot exceed the annual withdrawal limit.

• Disability assistance payments (DAPs). These are lump-sum payments made to the beneficiary (or to their estate after their death). The RDSP holder can request this type of payment at anytime after they turn 27. 

Warning: For each $1 withdrawn (LDAP or DAP), $3 of any grants or bonds paid into the plan in the previous 10 years must be repaid to the government. After 10 years, these amounts no longer have to be repaid.

• Specified disability savings plan (SDSP). As a general rule, the RDSP can become an SDSP when a medical professional certifies that the beneficiary is unlikely to survive more than five years. In this case, unlimited withdrawals are permitted and will not impact the plan, regardless of the beneficiary’s age.

When withdrawals are made:

• The part from contributions is not taxable 
• The part from grants, investment income, or a rollover is taxable (see the Rollover section under RDSPs)

RDSPs are quite complex, so it’s best to call on a specialist to help you plan how to make the best use of yours. 

How do you open an RDSP? 

Contact a financial institution that offers RDSPs, like National Bank. Here are the two possible scenarios depending on the beneficiary.

If they are contractually competent and have reached the age of majority, the RDSP beneficiary can also be the plan holder. The plan holder is the person who opens the RDSP and makes or authorizes contributions.

If they are not contractually competent or have not reached the age of majority, a parent or any other person or legally authorized agency or institution can be the RDSP plan holder. The plan holders can change over time. For example, if the plan holder dies or is not longer contractually competent, a new plan holder must be designated.

What happens when an RDSP holder dies?

Death of the beneficiary

If the beneficiary dies, the RDSP is closed. The government grants and bonds paid into the RDSP over the previous 10 years must be repaid. Any funds remaining will be paid to the beneficiary’s estate. The plan must be closed by December 31 of the year following the calendar year in which the beneficiary dies.

RDSP rollovers

The proceeds of a deceased parent’s or grandparent’s RRSP or RRIF can be transferred tax free to the RDSP of a child or grandchild, up to a maximum of $200,000 (less the contributions already made to the RDSP).

The funds in an RRSP, for example, are transferred to an RDSP. This inheritance will remain untouched as long as it isn’t withdrawn.

No grants: The usual government grants are not paid into the RDSP on amounts that are rolled over.

The Registered Disability Savings Plan is an essential tool for protecting the long-term financial security of persons living with a disability. Though numerous, the advantages are not widely known. 

Fortunately, our team of advisors is here to help you open your RDSP and take advantage of all the benefits you’re eligible for.