The Registered Disability Savings Plan (RDSP) Explained

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by Enoch Omololu

Updated

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The Registered Disability Savings Plan (RDSP) is a savings program designed by the Canadian government to assist people with disabilities.

The RDSP was implemented in 2008 and was the first program of its kind worldwide. It has been hailed as a great milestone in the effort to provide people with disabilities with financial security.

Who is Eligibile for the RDSP?

The RDSP can be set up by a parent or legal guardian (i.e. plan holder) of a disabled child (i.e. beneficiary), or it can be set up directly by an adult with a qualifying disability.

In general, a beneficiary qualifies for the RDSP if they are:

  • Eligible for the Disability Tax Credit
  • A Canadian resident
  • Under 60 years of age
  • Have a Social Insurance Number (SIN)

RDSP Contribution

Anyone can make a contribution to an RDSP as long as they have the permission of the plan holder. This way, a parent, grandparents, friends, other family members, and the beneficiary, can contribute to the plan.

Contributions made to an RDSP are not tax-deductible. However, they will generate matching government grants depending on your family’s net income.

A beneficiary can have only one RDSP open at any time.

There’s no annual limit on contributions, however, there’s a lifetime overall limit of $200,000 on contributions to a plan.

Depending on your family’s annual income, you may be eligible for additional government assistance in the form of the Canada Disability Savings Bond (CDSB), even if you make no contribution.

Government Assistance to an RDSP

The Canadian government makes significant contributions to the RDSP in a way that ensures families with different levels of income are able to benefit.

Your family’s net income (i.e. of the parent of a beneficiary or the beneficiary if over 18) as reported on the tax return for 2 years prior is used.

For example, to calculate the government grant or bond applicable for 2022, your income tax return for 2020 is used.

Government contributions available in the form of bonds or grants include:

1. Canada Disability Savings Grant (CDSG)

The CDSG matches whatever contributions you make up to 300% depending on your family income and contributions made.

  • In 2021, for income levels below $98,040, the government will match every $1 contribution with up to $3 for a maximum of $3,500 per year.
  • For family income greater than $98,040, the government will match every $1 contribution with $1, for a maximum $1,000 grant per year.
Family Net IncomeContributionsMatching GrantMaximum Annual CDSG
$98,040 or lessOn the first $500$3 for every $1$1,500
$98,040 or less On the next $1,000$2 for every $1$2,000
$98,040 + On the first $1,000 $1 for every $1 $1,000

2. Canada Disability Savings Bond (CDSB)

While the CDSG requires a contribution to be made in order to receive the government’s matching grant, you do not need to make a contribution to receive the CDSB.

Lower-income families may be eligible to receive the CDSB if their net income is $32,028 or less. The benefit amount is $1,000 per year. For those with a family net income between $32,028 and $49,020, a proportional amount less than $1,000 is received. The lifetime maximum CDSB payable is $20,000.

Family Net IncomeAnnual CDSB Received
$32,028 or less$1,000
$32,028 – $49,020Prorated amount less than $1,000
$49,020 +$0

Both CDSG and CDSB payments end when a beneficiary becomes 49 years old.

Canada Disability Savings Grant Contribution Example

Singh and Maureen have a child (Sai) who suffers from a disability and is aged 9 years old. Their family net income is $40,000. If they make a contribution of $1,500 to the RDSP for 2022, the CDSG matching grant is equal to:

First $500 = 500 x 3 ⇒ $1,500
Remainder $1,000 = 1,000 x 2 ⇒ $2,000
Total CDSG = $1,500 + $2,000 ⇒ $3,500
Total contribution to the RDSP for 2022 = $1,500 (contribution by Sai’s parents) + $3,500 (CDSG) ⇒ $5,000.

Canada Disability Savings Bond Contribution Example

Adeleke has an RDSP he opened for himself due to a disability. He is 23 years old and has a personal net income of $23,000. He made no contribution to his RDSP in 2022.

Since his net income is under $32,028, he will get a CDSB deposit of $1,000 in his RDSP in 2022 (assuming his $20,000 CDSB lifetime limit has not been reached).

Registered Disability Savings Plan RDSP

RDSP Withdrawal and Taxes

Withdrawals can be made from an RDSP in the form of Lifetime Disability Assistance Payments (LDAP) or Disability Assistance Payments (DAP). Withdrawals can generally start at any time, however, take note of the 10-year repayment rule below.

LDAPs are paid out as a regular income and must be paid out at least annually when a beneficiary becomes 60 years or older. DAPs are lump-sum payments made to the beneficiary.

Payments made out to beneficiaries include both contributions, grant money, and investment income earned on the account. Although contributions are not taxable, investment income earned plus CDSG and CDSB must be included in the beneficiary’s income tax return.

10-year RDSP Grant repayment rule:

Government grant or bond deposited within 10 years of withdrawal may need to be repaid – $3 of grant and/or bond must be repaid for every $1 withdrawn.

This means that if you want to keep all of the government’s grants and bonds, you must delay withdrawing from the plan for at least 10 years after the deposits were made to the RDSP.

RDSP Investment Options

Like other registered plans (RESP, RRSP, and TFSA), RDSP funds can be invested in a variety of investment products including Guaranteed Investment Certificates (GICs), stocks, ETFs, mutual funds, savings, etc.

Other RDSP Details

  1. An eligible individual can open an RDSP by themselves if they have reached the age of the majority where they reside – age 18 or 19, depending on the province.
  2. RDSP payments/withdrawals do not affect other federal income-tested benefits such as OAS, GIS, GST/HST credits, Canada Child Benefits, social assistance benefits, etc.
  3. RDSP payments will not affect your other provincial disability benefits in provinces including Manitoba, Alberta, British Columbia, Saskatchewan, Nova Scotia, Newfoundland and Labrador, Yukon, and the Northwest Territories.
  4. Before you can apply to open an RDSP, you must have been deemed eligible for the federal Disability Tax Credit. To apply for this tax credit, use Form T2201 – Disability Tax Credit Certificate.
  5. The overall lifetime limit available in government grants and bonds is $90,000 ($70,000 in CDSG and $20,000 in CDSB).
  6. The parents or grandparents of a financially dependent infirm child can plan to roll over their RRSP or RRIF tax-free into the RDSP of the child/grandchild when they die. Proceeds from the rollover do not qualify for CDSG.
  7. No contributions are required to qualify for the Canada Disability Savings Bond (CDSB).
  8. Like the RRSP, income earned on an RDSP is tax sheltered until withdrawal.
  9. Unused CDSG and CDSB entitlements can be carried forward for 10 years. This makes it possible for eligible individuals to claim unused grants or bonds even if they set up the RDSP at a later date.
  10. If a beneficiary is no longer eligible for the Disability Tax Credit (DTC), they need to terminate their RDSP by December 31 of the following year. If the beneficiary loses their DTC eligibility but is expected to become eligible again in the future, their RDSP is allowed to stay open for up to 5 years. During this period, no new contributions, grants, or bonds can be deposited in the account.
  11. Following the death of an RDSP beneficiary, the account must be closed. Contributions made to the plan are paid back to the estate of the deceased tax-free. Remaining government grants and bonds are paid back to the government, and any investment income earned on the account is entered as taxable income on the deceased’s final tax return.
  12. If you have specific questions about the RDSP program, call the government’s RDSP office at 1-800-959-8281 (TTY 1-800-665-0354).

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

2 thoughts on “The Registered Disability Savings Plan (RDSP) Explained”

  1. #10 If a beneficiary is no longer eligible for the Disability Tax Credit (DTC), they need to terminate their RDSP by December 31 of the following year. If the beneficiary loses their DTC eligibility but is expected to become eligible again in the future, their RDSP is allowed to stay open for up to 5 years. During this period, no new contributions, grants, or bonds can be deposited in the account.

    This is out date and needs to be revised. A RDSP no longer needs to be terminated when the DTC is no longer valid. Future Grants and Bonds will no longer be provided. Plan can stay open to age 60 and go through the same LDAP and DAP process.

  2. Does it make sense for someone with an under-funded RDSP (say $ 50K contributions to date) and approaching age 60 (so past the cut-off for government contributions) to ‘top up’ their RDSP to the maximum $200,000 contribution, if:

    1. they are not working (so RRSP contributions don’t make sense);
    2. they have the (say) $150K cash available;
    3. they are already maxing out their TSFA’s
    4. will be receiving the CPP disability pension from age 60 forward
    5. expected end of life between 70 – 75
    6. annual income age 60 – 75 of ~ $ 60,000 before tax (from RRSP’s, TSFA’s, RDSP,s, etc.)

    Or, does it make sense to simply invest the cash in a non-registered account. Assume same rate of return, inflation, annual withdrawals, marginal tax rate, etc.

    Not sure what to do here – and with the deadline of Dec. 31st in year of age 59 quickly approaching, wondering what is the best approach for maximizing total value and minimizing taxes.

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