How do you get your money out?
When you take money out of your RDSP, you can use it for anything that you want. But…there are a couple of very important things you need to remember, including the “10 Year Rule”!
- 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. The proportional repayment rule means that for each $1 withdrawn from an RDSP, you will lose $3 of any grants or bonds paid into the plan in the previous 10 years as they will need to be repaid to the government.
For those who opened an RDSP in 2008:
- Since ten years have passed, grants and bonds deposited in RDSPs in the year 2008 have become vested. In other words, the funds belong to the RDSP beneficiaries. The requirement to repay grants and bonds no longer applies to funds deposited in that year. However, the repayment requirement continues to apply to grants and bonds deposited in 2009 and subsequently. So the withdrawal of any funds from an RDSP will trigger the repayment requirement. For example, if a $1,000 bond was paid into an RDSP in 2008, and grants and bonds paid in subsequent years, the withdrawal of that $1,000 bond will trigger the operation of the repayment requirement in respect to grants and bonds deposited between 2009 and 2018.
- 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.
- 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.
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.
Before you begin withdrawing from your RDSP, we strongly recommend consulting your financial advisor for more information about when and how to withdraw from your RDSP.