Currently, if you withdraw even one dollar from an RDSP account, the Government of Canada will revoke any government contributions made in the previous 10 years. The government contributions are generous, but the 10 year withdrawal rule means even your own personal money contributed to the account is locked up for years. Many people are not too happy about this. For a description of the current withdrawal rules see Withdrawing Money From My RDSP – What Is This 10 Year Rule Anyway???
It seems the federal government has listened, at least somewhat. Starting in 2014, people will be allowed to withdraw limited amounts of money from their RDSP account without forsaking up to 10 years of government contributions. Instead, for every dollar withdrawn, the government will revoke three dollars of any government contributions made during the previous 10 years. Here is an example.
It is December 31, 2017. Kevin Porter has been contributing $1,500 a year since 2008 and has been receiving $3,500 each year as an RDSP Grant from the government, totaling $15,000 in personal contributions and $35,000 in government contributions. Kevin needs to withdraw $1,000 from his RDSP account for personal reasons. For every dollar Kevin withdraws, the government revokes three dollars. Since he withdrew $1,000, the government revokes $3,000.
$3,000 is a significant amount of money to forego in order to get access to $1,000, but it is much better than the current rule. Under the current rule, Kevin, our RDSP beneficiary, would have lost ALL of the government contributions made in the previous 10 years, which was $35,000. The government has softened the withdrawal rules, but not enough to open the proverbial floodgates.
If you have an RDSP and you do not want to pay any penalties due to a withdrawal, you have to wait 10 years after the very last government contribution. The purpose of the RDSP is to promote long-term savings, thus the existence withdrawal rules. The amendment to the 10 year rule still acts as a significant deterrent. People may take money out of their RDSP before the government contributions are fully vested, but they will think twice given the penalty costs.