Make a contribution to your Registered Disability Savings Plan (RDSP) and you can expect the government will make a generous matching “Grant” contribution. But how much should you contribute? If you are not careful, you could end up contributing more to your RDSP account than you needed.
Calculating the maximum Grant and what you need to contribute isn’t always straight-forward. It is especially complex if you have not received all the RDSP Grants from previous years (READ: How to Maximize Your RDSP). Even if you understand the calculations, you still need a host of information that might not be readily at hand.
If you are not sure what to contribute, the government provides that information to you by mail. Each year, near the end of January, you receive an “Annual Statement of Entitlement” in the mail from the Federal Government. The statement includes a table that outlines the available Grant entitlements.
Here is an example of the table:
But what do these three different amounts represent? Here is a breakdown to make it easier to understand.
Total Grant entitlement available:
The amount of Grant the RDSP beneficiary is entitled to from the Federal Government, including Grant amounts from previous years. In the example above, the Total Grant entitlement is $28,000. However, you can’t collect $28,000 in one year. The maximum Grant you can collect in one year is $10,500. If the entitlement is more than $10,500, it will take you multiple years to collect it.
Maximum Grant Available in 2018:
Simply put, this is the maximum Grant amount you can receive from the government in the current year.
Contribution which would attract Maximum Grant in 2018:
This is the amount you need to contribute to the RDSP to receive the maximum Grant amount. In this example, you need to contribute $4,250 to receive the full $10,500 Grant available for 2018.
RDSP – Frequently Asked Questions
Transferring Your RDSP
As the notes in the tables state, you are not required to contribute the amount needed to collect the maximum Grant. You can contribute less or even chose to contribute nothing at all.
If you can’t find your Statement of Entitlement, you can contact the Government at 1-800-959-8281. You will need your SIN number when you call. Ask them for the following information:
- The maximum Grant amount you are eligible to receive this year.
- The amount you need to contribute to receive the maximum Grant.
Once you have that information, you can decide what to contribute and not risk contributing more than required.
That is very helpful. Kept confusing the amount under Total Grant and the amount under Maximum Grant. Maximum Grant is the most the government would give me this year, and Total Grant is all the Grants I didn’t collect in previous years. Did I get that right?
You understand the Maximum Grant as that represents the maximum Grant the government will provide in the current year.
You also understand the Total Grant, except for one small piece. Yes, it does represent the total amount of Grants you have not collected, but not necessarily from ALL the previous years. It would only include Grants you haven’t collected in the past TEN YEARS.
Any Grants you were eligible for 11 years or more ago, would not be included. The Government will not let you go that far back.
Also, Total Grants includes your Grant entitlement for the current year.
I wish someone would had explaned me as it is in this article before opening my RDSP last year. I made a contribution of 15,000 in one shot not knowing about the annual max of 10,500. 🙁
I am sure you are not the only one, so don’t be too hard on yourself. It isn’t an easy thing to figure out and most financial professionals aren’t familiar with the calculations. The money you put in there will still grow tax-sheltered, so that is good.
I’m 57 and my application for the disability tax credit was approved for 2018 onward. I’m receiving the taxable provincial disability pension of $1,255 per month and the non-taxable monthly private insurance disability payments of $1,392 per month till age 65 or until I take my employer’s provincial defined benefit pension plan at age 60 with no penalty. These two payments total $31,773 per year. The employer’s pension is about $29,000-$30,000 annually from age 60-65. At 65, it will drop to about $19,000 since the provincial pension plan will be factored in at that time. I’m holding off taking my work pension for as long as I can or until the insurance company tells me I have to take it at age 60.
My question is, is it even worth it for me to open an RDSP at this age? What would be the pros and cons? Since I have a defined pension plan, I don’t think I’ll qualify for the guaranteed income supplement, GIS, anyway. I have about $277K in RRSP, $71K in TFSA, and $269K in unregistered savings.
Broadly speaking, the value of opening an RDSP account when you are in your 50’s are the tax benefits. Interest, dividends and realized capital gains generated by investments in a non-registered account are subject to tax, which eats into net investment returns. In an RDSP, investments grow on a tax-deferred basis. Similar to the RRSP, there are no tax consequences until money is withdrawn from the account. So, investment growth is not eroded by interest, dividends and realized capital gains that would otherwise be taxed in a non-registered account each year.
For example… Let’s say $100,000 is invested in a non-registered account and earns 6% each year over a 3-year period, but taxes take 20% of the growth each year, there would be approximately $115,100 in the account at the end of three years (after tax). If the same $100,000 is put into an RDSP (no government contributions are received because the person is in their fifties) and it also earns 6% each year over a 3-year period, there would be approximately $119,100 in the account at the end of three years because there are no tax consequences until withdrawals are made.
Unlike the RRSP/RRIF where each dollar withdrawn is subject tax, only a portion of a withdrawal from an RDSP account is taxable. Only government contributions to an RDSP and investment growth are subject to tax upon withdrawal. Personal contributions are not taxable. When a withdrawal is made, a formula determines what percentage of the withdrawal is considered taxable and not taxable. If you are opening the RDSP account in your fifties, you will not receive any government contributions, so only the portion of the withdrawals considered investment growth will be taxed. This is all to say that generally the tax treatment of withdrawals from an RDSP is much more preferable to the tax treatment of withdrawals from an RRSP.
There are other factors to consider before moving money from your non-registered account to an RDSP account. While I can explain the benefits the RDSP has to offer, I can’t say if I would recommend such a move for you. My strong suggestion is to consult with a knowledgeable financial professional with strong RDSP experience to help you make a fully informed decision.