RDSP's Explained

The Registered Disability Savings Plan (RDSP) was established to assist individuals and those supporting them to save for the retirement of the individual with the disability.  The Government of Canada will deposit both grants and bonds into an RDSP until the end of the year of the beneficiary’s 49th, birthday.  These are paid retroactively so if the beneficiary or their legal guardian opens an RDSP when the beneficiary is 18 years old, the government will contribute grants and bonds up to the past 10 years provided the beneficiary has had the Disability Tax Credit (DTC) for that long.

Grants are paid based on personal contributions deposited into the RDSP.  For the first $500, the government will contribute $3.00 for every $1.00 contributed within a 12-month period.  If you contribute $500, the government will deposit $1,500 into the account.  The government will contribute an additional $2.00 for every $1.00 contributed within a 12-month period on the next $1,000.  If you contribute $1,000, the government will deposit $2,000 into the account.  This is based on the beneficiary’s income being below $100,392.  The RDSP can attract up to $70,000 in grants up until the end of the year of the beneficiary’s 49th, birthday.

However, bonds are solely based on the beneficiary income and not on personal contributions.  For instance, if the beneficiary’s only income comes from the Ontario Disability Support Program (ODSP), their income will be below the $32,797 threshold, so a $1,000 bond will be deposited into the RDSP for 20 years.  However, the bond amount will be pro-rated if the beneficiary’s income is between $32,797 and $50,197.  If the beneficiary’s income is above $50,197, there will be no bond paid.  If an RDSP is opened when the beneficiary is 20 years old, by the time the beneficiary turns 40, they will have attracted $20,000 in bonds.

 ODSP considers an RDSP an exempt asset which means any money saved within an RDSP, no matter the amount, will not affect the beneficiary’s benefits.  In addition, an individual receiving ODSP may have $40,000 in assets (cash in a bank account and other investments) without affecting their benefits and a couple can have $50,000.

An RDSP is meant for the retirement of the individual with the disability and there are penalties if funds are withdrawn within 10 years of government contributions.  The government implemented the 10 Year Proportional Repayment Rule.  If the government deposits grants or bonds into an RDSP within 10 years of the plan being opened, withdrawals will not be allowed without having to pay back some of the money the government contributed.  For every $1.00 withdrawn, the government will take back $3.00 of grants and bonds that were deposited into the RDSP within the previous 10 years.

The purpose of this rule is to discourage funds being withdrawn.  This is why it is essential to have additional funds set aside for unexpected emergencies such as in a Tax-Free Savings Account (TFSA).

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