What is a Registered Disability Savings Plan (RDSP)?

September 13, 2023

People living with disabilities and their loved ones face many challenges including distinct financial challenges and obstacles to preparing for their financial future. In 2008, the Canadian government implemented the Registered Disability Savings Plan (RDSP) to assist people with disabilities to achieve long-term financial security.

The RDSP holder can make contributions into the plan with the government adding in grants and bonds, for a beneficiary. This valuable savings program is underutilized so it is important to increase awareness and understanding about the benefits of an RDSP.

Who can open an RDSP?

Canadians who qualify for the Disability Tax Credit (DTC) up until December 31st in the year they turn 59 years of age can be a beneficiary for an RDSP.

The RDSP is opened at a financial institution that offers this savings plan by the holder, who in turn manages the monies for the beneficiary. The holder of the plan can be the parent of a minor child, or a parent, spouse/common law spouse, legal representative of an adult not contractually competent to enter the plan. An adult who is contractually competent to enter the plan can be the holder and the beneficiary of their own plan.

The RDSP is created for the long-term financial security of the beneficiary, who will be the recipient of the monies.

Government Grants and Bonds

The Government of Canada adds to the RDSP in two ways -- the Canada Disability Savings Grants (CDSG) and the Canada Disability Savings Bonds (CDSB) -- which are calculated based on the contributions made and the family’s net income up to the annual amounts. Unused grant and bond entitlements can be carried forward for up to 10 years.

2023 CDSG entitlement calculation:

Family net income up to $106,717

• 300% on the first $500 in contributions, then 200% on the next $1,000 in contributions up to the annual limit of $3,500.

Family net income over $106,717

• 100% on the first $1,000 in contributions up to the annual limit of $1,000.

2023 CDSB entitlement calculation:

• For lower income families, the government may credit up to $1,000 without a contribution.

• Family net income up to $34,863 – maximum $1,000 annually.

• Family net income of $34,863-$53,359 – bond value of $1,000 on a prorated basis.

• Family net income over $53,359 – there is no bond credited.

Lifetime limits per beneficiary:

• Contributions: $200,000

• CDSG: $70,000

• CDSB: $20,000

How does the beneficiary withdraw from the RDSP?

There may be times that the beneficiary may require a one-time lump sum or it may come time to convert the RDSP into an annual income stream. There are two ways to withdraw the monies, however there is one important thing to remember. If the RDSP received CDSG or CDSB, the funds must remain within the RDSP for a full 10 years or the government will apply the Assistance Holdback Amount (AHA) requiring a repayment of grants or bonds in a ratio of 1:3. This means that for every dollar withdrawn there is a $3.00 grant or bond repayment required.

Two ways to make withdrawals from an RDSP

1. Lifetime Disability Assistance Payments (LDAP)

   • recurring annual payments, once started must continue until the plan is concluded or the beneficiary passes away.

   • can begin at any time but must commence no later than in the year when the beneficiary turns 60 years of age.

   • annual maximum amount calculated based on market value and the beneficiary’s life expectancy.

2. Disability Assistance Payments (DAP)

   • lump sum payment may be made to the beneficiary if required -- only if there are funds remaining after the AHA is applied (if required).

Taxation Considerations

• contributions are not deductible to taxable income when made into the plan. Contributions are made with after tax income.

• investment income earned on the monies while in the plan is tax-free.

• contributions when withdrawn are not taxable.

• CDSG, CDSB and investment income is taxable income to the beneficiary.

It is important to remember that an individual can continue to make RDSP contributions as long as they are eligible for the DTC. If the beneficiary ceases to qualify for the DTC, the plan remains open unless the holder requests to close the plan. A beneficiary who stops being eligible for the DTC may become eligible for the DTC again, and will be able to resume contributing to the plan. The balance within the RDSP or payments received from the RDSP do not affect social assistance programs such as Child Tax Benefit, Guaranteed Income Supplement, GST benefits or the beneficiary’s Ontario Disability Support Program (ODSP) payments.

The Registered Disability Savings Plan is an important savings planning tool for individuals with disabilities to participate in to assist with their long-term financial security. It could help increase financial independence along with providing peace of mind. Speak with your financial adviser to gain further in-depth knowledge and learn more about how this very crucial program and its benefits.

FirstOntario Credit Union in partnership with Credential Securities and Credential Asset Management Inc. has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntario.com/Investments or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.

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