Why would I choose an RDSP over other savings accounts?
The RDSP allows you to contribute up to $200,000 without affecting your disability benefits, even when you start withdrawing the money.
I don’t have any extra income – what’s the point of opening up a savings account?
The RDSP actually benefits those with low incomes the most because you can receive up to $20,000 of government contributions without putting any money in yourself. This is through the Canada Disability Savings Bond.
Any money you do put in can be matched by the government up to $3 for every $1 you put in through the Canada Disability Savings Grant.
What do you mean “up to $3 for every $1 you put in”?
If the beneficiary’s income is $95,259 or less:
- For the first $500 contributed into the RDSP, the beneficiary will receive $3 for every $1 contributed. For the next $1,000, the beneficiary will receive $2 for every $1 contributed.
- The maximum grant for any one year is $3,500. The lifetime maximum grant is $70,000.
If the beneficiary’s income is above $95,259:
- For the first $1,000 contributed into the plan, the beneficiary will receive $1 for every $1 contributed.
- The maximum grant for any one year is $1,000. The lifetime maximum is $70,000.
- A beneficiary may receive the full $3,500 grant one year, and $1,000 the next year (it is completely dependent on their income for two years prior.)
What if I need to withdraw the money sooner?
The RDSP is best used as a long term savings account. If you need to withdraw money before you turn 60 years old, you can do so. Doing so will cause the last 10 years of government contributions to be returned to the government. Please see the following examples:
- If an individual has contributed for 10 years or less, then they would be required to repay all of the government’s contributions. They would keep their contribution as well as any interest earned on both the beneficiary’s contributions and the government’s.
- If an individual contributes for 15 years and then wishes to take the funds out, they would pay back the last 10 years of contributions by the federal government but keep the first 5 years as well as the interest earned on both the government’s contributions and beneficiary’s contributions.
- If the individual has had the RDSP for 30 years and the government’s last contributed was 10 years prior, no funds would be required to be repaid.
What is the Disability Tax Credit?
This is a non-refundable tax credit that people with severe and prolonged disabilities may be eligible for. Once eligible, the person with the disability who qualifies, or one of their caregivers may claim the tax credit when doing their income taxes to reduce how much money needs to be paid to the Canada Revenue Agency (CRA). You must be eligible for the DTC in order to open an RDSP.
How do I get the Disability Tax Credit?
You and your doctor or nurse practitioner must fill out form T2201 and submit it to the CRA. Once received, it can take a minimum of 3-4 months to hear back.
*For those in British Columbia, Disability Alliance BC offers free one-to-one support in filling out the form and preparing the documents you’ll need to give to your doctor.
What if the beneficiary stops qualifying for the Disability Tax Credit?
For a disability savings plan to qualify as an RDSP, the beneficiary must be a DTC-eligible individual for the year in which the plan is established. The beneficiary must also be DTC-eligible each year in order for the plan to remain an RDSP.
DTC is in place for an entire calendar year (January 1 to December 31), regardless of when the beneficiary is informed of the credit being granted or rescinded.
The holder must terminate the RDSP no later than December 31 of the year following the first full calendar year in which the beneficiary is no longer eligible for the DTC. Example:
- Dec. 31, 2014: Last day beneficiary is DTC-eligible.
- 2015: First full calendar year where beneficiary is DTC-ineligible.
- 2016: Second full calendar year where beneficiary is DTC-ineligible.
- Dec. 31, 2016: Last day to close the RDSP.
However, in the case where a beneficiary becomes DTC-ineligible but a medical doctor certifies that the beneficiary may, due to the nature of their condition, be eligible for the DTC once more at a later date, the period for which an RDSP may remain open may be extended if the holder elects to do so.
An RDSP for whom a beneficiary is DTC-ineligible may remain open for a period of up to five years if the holder elects to do so by December 31st of the second consecutive year of DTC-ineligibility and meets the following conditions.:
- A medical doctor must certify, in writing, that the beneficiary will likely become DTC-eligible in the foreseeable future. It is recommended that this is done as soon as possible after receiving notice of ineligibility or request for requalification of the DTC status.
- The beneficiary must have been DTC-eligible in the year immediately before the year in which the election is made.
- The holder must make an election to keep the plan open.
- The issuer must notify Employment and Social Development Canada (ESDC) by sending the appropriate transactions.
What happens if the beneficiary passes away while the RDSP is still open?
At the death of the beneficiary, the RDSP must be closed no later than December 31 of the year following the year of the death. All amounts remaining in the plan must be paid out to the beneficiary’s estate, except for the Assistance Holdback Amount (AHA), which is reimbursed to the Government of Canada.
The AHA is made up of all the grants and the bonds that have been paid into the RDSP within a 10-year period for a beneficiary by the Government of Canada, less any amount of grant and bond that has been repaid to the government during that 10-year period.
EXAMPLE: Jeff opens an RDSP in 2011 and contributes $1,500 to his plan annually, being eligible for the maximum grant ($3,500) for each year. In 2016, the assistance holdback amount for his plan equals $21,000.
In 2016, he withdraws $600 from his RDSP. Under the 10-year repayment rule, the entire assistance holdback amount ($21,000) would have to be repaid. Under the proportional repayment rule, $1,800 of the assistance holdback amount will be repaid (approximately 9% of the repayment required under the former 10-year repayment rule). The $1,800 repayment will come from the grants paid into his RDSP in 2011 and the plan’s assistance holdback amount will be reduced to $19,200.
Can I regain the lost grants and bonds if I re-qualify for the DTC and can re-open my RDSP?
Unfortunately you cannot. Once the grant and bond money has been repaid there is no way that you can get that money back, even if you qualified for those years.
When should I open an RDSP?
As soon as possible. You will no longer receive government contributions after the age of 49, so it is better to open the account as soon as possible to maximize the grant and bond money.
I’ve qualified for previous years for the DTC – how do I get those grants and bonds?
Each year the government sends each plan holder an annual breakdown called a “Statement of Entitlement” explaining how much grant room is available and how to maximize it for the year.
The carry forward provision allows individuals to access unused bond entitlements from the past 10 years, starting from 2008 (the year the RDSP became available). This applies to all RDSPs, regardless of when the plan is registered.
The entitlements do not accrue during any period a beneficiary is not eligible for the DTC or not a resident of Canada.
The annual bond entitlement is based on the beneficiary’s family income; by qualifying for and receiving the annual maximum bond payment of $1,000 each year*, a beneficiary will reach the lifetime bond limit within twenty years. A beneficiary has the potential of receiving annual bond payments up to the calendar year in which they turn 49 years old but must apply for the bond on or before December 31 of the year that they turn 49.
The maximum annual amount of unused bond that can be carried forward and paid into an RDSP in a calendar year is $11,000. This includes any bond entitlement for the current year.
How do I know what my annual bond entitlement will be?
If your net income is less than $31,120 per year, the federal government will put $1,000 into your RDSP for that year.
If your net income is between, $31,120 and $47,630, the government will put a portion of $1000 into your account.
If your net income is over $47,630, you will not receive the bond for that year.
If you are younger than 18, then it is your family income that counts. The current family income threshold is $90,563. You will receive all or a portion of the $1000 bond if your family’s net income is at or below $90,563. If your family’s net income is above this, you will not receive the bond for this year.
How often should I check the status of my DTC?
When you receive the letter confirming your eligibility for the DTC, it will tell you what years you are eligible for. You should save this and make a note somewhere you won’t forget. At least six months before your DTC is set to expire you should engage in the renewal process. You can apply to renew your DTC up to 1 year before it actually expires.
Is there any way I can keep my RDSP account open while I wait to re-qualify for the DTC?
Yes, your doctor can “Make an Election”, which means that they write a letter to your bank stating that you will likely be eligible for the DTC again in the next five years. This will put your RDSP account on pause while you wait to re-qualify for the DTC. This must be done BEFORE the account is closed.
What do I do if I don’t have a doctor?
If you don’t have a regular doctor, you can ask your nurse practitioner to fill out the form. It is best that your medical professional knows you and your disability personally. If you don’t currently have a regular doctor or nurse practitioner you should start looking for one and begin that relationship. You should see your doctor or nurse practitioner at least three or four times before asking them to fill out the T2201 form for you.
Can I ask my local walk in clinic doctor to fill out the DTC form for me?
While you can do this, it would be best for you to choose a doctor that knows you fairly well. If this is the first time you’re seeing the doctor, wait for a few visits before asking for them to fill out the form. You’ll want them to know you and how your disability impacts your life really well so that they can provide a detailed response.
My doctor refuses to sign and fill out the form – what next?
If your doctor refuses to fill out the form for you, ask them why. Once you have this clarification, you may need help from an advocate to get your doctor to fill out the form.
*If you reside in British Columbia please contact Disability Alliance BC for free support.
What are the benefits of having an RDSP from age 50-59?
Having an RDSP after 50 can be a great way to save money without having your disability benefits impacted. This may be more practical for people who are about to receive a large sum of money, such as through an ICBC settlement or an estate sale. When you choose to withdraw your money, you will still receive your disability benefits without penalty.
When can I start receiving payments?
You can start receiving monthly payments starting at age 60. You can take out lump sum payments at any age, though this may cause some repayment of government contributions due to the Ten Year Rule.
What is the 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).
How do payments work?
You must begin to receive money from your RDSP starting at the age of 60. HOWEVER, you can take one-off payments or start regular payments at any age.
If the federal government contributed more to your RDSP than you (and your family and friends) did, then you can withdraw a limited amount in one year. This is either the money in your RDSP divided by the number of years before you turn 83, or 10% of the amount in the plan per year.
If you receive a federal government grant or bond, there is a “holdback period” of 10 years from the year of the last federal contribution. Note that there has been a recent change in the penalty: Up until the end of 2013, if you made a withdrawal from your plan during that period, you would have had to pay back all funds received from the federal government in the past 10 years. As of January 2014, however, this rule changed to become a “proportional repayment rule” so that for each $1 withdrawn from an RDSP, only $3 of any grants or bonds paid into the plan in the 10 years will need to be repaid.
Who should be a holder of the account? Can you have more than one holder?
If the beneficiary of the account has reached the age of majority and are contractually competent they should be the holder of the account. If the legal parent(s) are holders of the RDSP account for the beneficiary while they were under the age of majority, the legal parent(s) could remain sole holder(s) of the plan or be added as a joint holder. You can have up to three joint holders in this situation.
Do I have to keep my RDSP in the same financial institution I opened it up with?
No, you do not. You can transfer your RDSP from one institution to another under these following conditions:
- The transfer must be made directly from the beneficiary’s current RDSP to a new RDSP for the same beneficiary
- A transfer can only be made if all holders of the current RDSP agree to the transfer
- All funds must be transferred from the current RDSP to the new RDSP
- The current RDSP must be terminated immediately following the transfer; and
- If the beneficiary has reached 59 years of age prior to the year the transfer is taking place, the new issuer must agree to pay any DAPs required to be made under the plan
Can I deposit a lump sum into my RDSP provided it doesn’t exceed the lifetime contribution limit of $200,000?
While the lifetime contribution limit is $200,000, there is no annual contribution limit. This means that you can deposit any amount into your RDSP in a year, as long as your total personal contributions doesn’t exceed $200,000.
However, the government grants only match contributions to a maximum of $1,500 per year. Therefore if you wish to maximize receipt of government grants, we would recommend you speak to your financial planner about spreading funds over several years as well as other considerations, such as having an accessible emergency fund or TFSA.
Do I need a Will when I open an RDSP account?
Any person who has an RDSP, should have a Will. When you pass away, your Will will say what will happen to the remaining money. If you don’t have a Will, the government will pass out the money according to provincial law.
Creating a Will can be easy or fairly complicated. We recommend talking to a lawyer that understands your situation. Some adults do not have legal capacity to draft a Will, and the remaining money will automatically be passed out according to provincial law. If you pass away, the designated guardian will become the Holder of the RDSP. However, you will need to direct the guardian to make the change with the financial institute.
If you have additional questions about Wills, including where to find help from professionals, please call Plan Institute’s toll-free helpline at 1-844-311-PLAN (7526). Plan Institute also offers a workshop on Wills, Trusts and Estate Planning, and how this all ties into RDSPs, click here.
What is the Endowment 150 (E150)?
E150 offers eligible British Columbians a one-time grant of $150 to help their Registered Disability Savings Plan (RDSP) grow. You can apply for the E150 here.
Where can I go for more free support?
*Please note that these are BC resources. If you would like to suggest another resource or provider, please email us at firstname.lastname@example.org
Disability Tax Credit
For help with tax aid, national and provincial benefits, and applying for the Disability Tax Credit, you can go to Disability Alliance BC.
Advocacy Access Program: 604-872-1278 or toll free 1-800-663-1278
Hours: Monday-Friday, 8:30AM-4:30PM
All Other DABC Programs: 604-875-0188 or toll free 1-800-663-1278
- Call the Plan Institute RDSP Helpline 1-844-311-PLAN (7526)
- Take a free information session
- Find more resources at RDSP.com
Indigenous people living in British Columbia who are looking for information surrounding the RDSP and DTC can connect with one of BCANDS’s Indigenous RDSP Navigators at email@example.com, (250) 381–7303 – Ext: 204, or toll free: 1-888-815-5511 – Ext: 204.