Reminder: if you are new to this blog and want a detailed description of the RDSP please click on the header under “RDSP FactSheet” or refer to the September post entitled “Review of the Registered Disability Savings Plan”.

One of the most frequent questions I get asked when speaking with families about the RDSP is “what is this ten year rule around withdrawals”.  Many of you have probably come across this particular characteristic of the plan and wondered exactly what it means for your longterm strategy when creating a plan for the RDSP.  This Ten Year Rule seems to be a provision within the plan which has the most amount of confusion surrounding it.

First, I will just mention that although the Ten Year Rule does mean there a certain restrictions to withdrawing (if you have received any Grant and Bond), the benefits of setting up a plan are far greater and the Ten Year Rule should be considered when planning for your future, but should not deter you from setting up a plan.

Second, if you set up an RDSP and decide you DO NOT want to receive the Canada Disability Savings Grant and the Canada Disability Savings Bond, the Ten Year Rule does NOT apply to you.  If you only receive family and friends contributions into the plan you will have no restrictions as to when you may withdraw from the plan.

So, what exaclty is this Ten Year Rule?

If you have received any Grant and Bond from the Government you will have to wait ten years after the last Grant and Bond is received before you withdraw from the plan.  If you decide to withdraw before this ten year waiting period is over, you will receive a penalty.  This penalty is, any Grant and Bond received within the last ten years of a withdrawal will have to be paid back to the Federal Government.  An easier way of understanding this is: “if you withdraw from the plan, look back ten years from the date of withdrawal and if there is any Grant and Bond received within those ten years it will have to be paid back to Government.”  This will not include the interest from the Grant and Bond or family and friends contributions, only the Grant and Bonds themselves.  Once a Grant and Bond has been in your plan for ten years, it then becomes the asset of the beneficiary and will not be taken back.

For example, if John sets up a plan at the age of 20 and contributes and receives the Grant and Bond for 20 years, he will have to wait until he is 50 before he begins withdrawing from the plan (without penalty).  If, for example, he decided he wanted to make a withdrawal at the age of 40 (having received the Grant and Bond between the ages of 20 and 40 years of age), he would have to pay back any Grant and Bond received between the ages of 30 and 40).

Can you specify which portion of the plan you withdraw from?

Unlike the Registered Education Savings Plan, you cannot specify which portion of the plan you are withdrawing from the RDSP.  Every dollar coming out of the RDSP is considered to be made of 3 parts: 1) Family and Friend Contributions, 2) Government Contributions (Grant and Bond), and 3) Interest.  

Why put in the Ten Year Rule?

The Ten Year Rule was put in place by the Federal Government to ensure two things: a) that the plan remained a longterm savings plan, and b) that there would not be any “tax slippage”.  

The Federal Government will most likely be reviewing this characterictic of the plan when they conduct their 3 year review of the RDSP, as many families have brought it forth as an issue.

The RDSP Calculator (click here) does take the Ten Year Rule into account when processing your individual situation, so make sure to run a few different scenarios on the RDSP Calculator.