Registered Disability Savings Plans (RDSPs) can help clients with disabilities build long-term savings with aid from the federal government. They are especially designed for individuals who qualify for the Disability Tax Credit.
In this article, Wealth Professional Canada will talk about how an RDSP works, how much your clients can contribute, and what the 10-year repayment rule means. You can also scroll to the bottom and see all the latest RDSP news that we've published!
An RDSP is a registered savings plan intended to support a person with a disability in the long term. It is set up for a beneficiary who is approved for the Disability Tax Credit and is a resident of Canada with a Social Insurance Number.
The plan must be opened before December 31 of the year the beneficiary turns 59. Once the RDSP is open, the federal government might add money, depending on family income and contributions, through:
Inside the plan, investments grow on a tax-sheltered basis. Withdrawals later in life provide support for the beneficiary. This usually starts no later than the year they turn 60. Watch this video to learn more about RDSPs:
Find out why financial advisors need to familiarize themselves with RDSPs in this article.
RDSPs are offered by banks, credit unions and investment firms. Once the plan is open, your clients or other permitted contributors can add funds, subject to the lifetime contribution limit and grant rules.
There are two roles involved in an RDSP:
To open a plan, both the beneficiary and the holder must have a Social Insurance Number. Each RDSP can have only one beneficiary, and each beneficiary can have only one RDSP. If the plan holder needs to be changed, the existing one must send a request to the financial organization.
In some cases, the beneficiary and plan holder are the same person.
To open an RDSP, the beneficiary must:
All of these conditions need to be met before a plan can be opened.
Anyone can contribute to an RDSP if they have the holder's permission. That includes the beneficiary, family members, friends, or even organizations that want to support the beneficiary.
In practice, the holder controls who has authority to add funds. Each institution has its own process for granting permission to third-party contributors, so you will need to coordinate with your financial organization on this point.
In some situations, amounts from registered retirement and education savings plans can be rolled into an RDSP. Two common cases are:
All transfers and rollovers count toward the $200,000 lifetime RDSP limit. For example, if an RDSP already has $50,000 of contributions, only $150,000 in rollover amounts can be added. Transfers do not attract government grants, but they still enjoy tax-sheltered growth once inside the RDSP.
RDSPs do not have an annual contribution limit. Instead, they have a lifetime cap on personal and family contributions.
Over the lifetime of the RDSP, up to $200,000 of contributions can be made. This includes all contributions from any source, as well as amounts rolled over or transferred from eligible retirement and education savings plans.
Grants, bonds and investment growth do not count toward this $200,000 limit. Once the total of contributions and rollovers reaches $200,000, no further contributions are allowed. However, the plan can remain open and continue to grow.
An RDSP is not an investment by itself. It is a registered account that can hold different investments while also giving access to grants and bonds from the federal government. Whether it is a good choice for your clients depends on their eligibility, income level, time horizon, and need for flexibility.
RDSPs grow on a tax-sheltered basis. When money is withdrawn, the taxable portion includes grants, bonds and investment growth. Original personal contributions are not taxed again on withdrawal.
Opening and contributing to an RDSP does not affect eligibility for federal benefits or for most provincial and territorial programs. However, withdrawals might affect certain provincial benefits in these locations:
Before planning withdrawals for clients in these provinces, it is important to check how those payments interact with local disability or income support programs.
For many families, the government support through grants and bonds is a strong reason to use an RDSP. The structure encourages long-term savings, and the rules are built to preserve benefits in most regions.
At the same time, RDSPs are designed as long-term accounts. Early withdrawals often trigger repayment of grants and bonds that were deposited in the previous 10 years. Clients who need short-term access to funds or expect frequent withdrawals might find this restrictive.
RDSPs work best when you and your clients can commit to a longer period, with careful planning around the timing of withdrawals.
Learn more about RDSP withdrawals when you watch this clip:
Curious to know if you're bringing maximum value to your disabled clients? Read this article.
The 10-year repayment rule is at the heart of how RDSPs work. When certain events happen, government money paid into the RDSP in the 10 years before that event must be repaid.
To track this, RDSP issuers maintain an assistance holdback amount. This is the sum of all grants and bonds paid into the RDSP in the last 10 years, minus any grant and bond already repaid that relate to that period.
When a triggering event occurs, the amount that needs to be returned to the government is equal to that assistance holdback amount.
All grants and bonds paid in the 10 years before the event must be repaid when:
On the death of the beneficiary, grant and bond amounts from the last 10 years are repaid. Any remaining balance in the RDSP then goes to the beneficiary's estate. The financial organization must transfer this balance to the estate no later than December 31 of the year after the year of death.
Although there is no annual cap, yearly contributions interact with the grant structure. For each year, there is a maximum grant that can be earned, based on family income and carry-forward. To receive the full matching grant for that year, your clients only need to contribute up to the amount specified in their Statement of Entitlement.
Every February until the beneficiary turns 49, the plan holder receives a Statement of Entitlement. This shows how much grant is available for that year and explains how much needs to be contributed to receive that grant. This also includes any carry-forward from past Disability Tax Credit approved years.
Any contributions over the amount needed to attract the maximum grant for the year are considered unassisted contributions. They still count toward the $200,000 lifetime limit but do not generate additional matching. These unassisted amounts also cannot be withdrawn without triggering the usual repayment rules on grants and bonds.
After December 31 of the year the beneficiary turns 49, grants and bonds stop. Your clients can still contribute to the RDSP until December 31 of the year the beneficiary turns 59. They can also benefit from continued tax-sheltered growth, as long as they have not reached the $200,000 lifetime limit.
RDSPs can support long-term financial security for your clients who live with disabilities and qualify for the Disability Tax Credit. Government grants and bonds can add substantial value to personal and family contributions, while tax-sheltered growth helps those savings build over time.
At the same time, RDSPs come with detailed rules around eligibility, lifetime contribution limits, withdrawals and the 10-year repayment rule. For many Canadians, an RDSP can sit alongside other registered plans, pensions, and income support programs as part of a long-term strategy.
When you fully understand how RDSPs work in practice, you can guide your clients in building savings that support their needs later in life.
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