Despite the incredible value a Registered Disability Savings Plan (RDSP) can offer, very few eligible people have opened one. Why? Probably because many people do not know about it or do not understand how it works or the value it offers. If you are one who doesn’t know about it or not sure if it is worth the effort to understand it, I think you should read on.
For people who are not familiar with the RDSP, here is a very short, high level description of the value the RDSP provides without much detail. My point is not to explain the details of the RDSP; it is to help you determine if it can provide you or someone close to you with enough value to pursue it or not.
To put it simply, if you have a disability, qualify for the RDSP and deposit money into your account, the federal government will contribute to the account as well, often times much more than you ever will.
Here is an example. If parents, earning $68,000 in annual income, have a 10 year old child with a disability, and they deposit $1,500 into an RDSP account for their child, the government will contribute $3,500 (called a grant) as well. After contributing every year for 20 years, the parents have deposited a total of $30,000 and the government has deposited $70,000. That is a 233% return on investment. I do not know of another dependable source that will provide such a significant return on your money and I don’t believe anyone else does either.
Also, for families that earn a very small income, less than $24,000 a year, the government will automatically deposit $1,000 (called a bond) every year and the families are not required to make a deposit to secure the bond. The maximum amount of bond contributions the government will contribute over a person’s lifetime is $20,000.
Ultimately, somebody with an RDSP account can accumulate up to $90,000 in contributions from the federal government. Add in the $30,000 of personal contributions and you have $120,000 in combined contributions.
If you invest that money wisely – yes, you can invest the money, rather than let it sit in a savings account – and earn a reasonable return, the account could be worth over $300,000 when it comes time to start withdrawing the money later in life (remember, the RDSP was created for long-term savings).
In addition to being one of the most valuable registered plans assembled by the feds, it is also the most complicated. However, if you qualify for the Registered Disability Savings Plan, I do not see a reason why you should not pursue it. A reason might exist, but I have not seen it yet.
Hi Ron. I just received a 66,100 inheritance and would like to buy a house for my 14 yr. old son and I for 134,000. They require a 26,900 down- payment for a mortgage of 499. Per month. Can I put the remainder 39,000 into a rdsp keeping approx. 6 thousand to help us get started etc.? I make approx. 1600. Odsp per month, 400. Child tax per month and trelium and gst/ pst payments equalling to about 24 thou. Per yr. would I qualify for a mortgage do u think? And or should I put the balance on that other plan u recommend(forget the plan)? Please let me know if u can offer me some advice on this timely matter. Best regards.
Your approach to dealing with your situation is heading in the right direction. It is hard for me to tell how much you should put into an RDSP vs a Segregated fund account without a better understanding of your circumstances and needs as well as your age. We would need to have at least an initial discussion to point you in the right direction. Choosing between an RDSP and seg funds partially depends how you are and when you need the money. Putting money in an RDSP may mean you can’t touch the money for years to come without suffering government penalties for making withdrawals. Feel free to call me, if you like and we can discuss.
I am not in a position to tell you if you would qualify for a mortgage. Not my area as I am not a mortgage broker. If you would like the name of a mortgage broker, I can provide you with some names over the phone or via email.
Also, just to correct one thing, you wouldn’t be allowed to have more than $5,500 in a bank account (not $6,000). The basic exemption for a single person is $5,000 and that is increased by $500 for each dependent you have.
Hope this helps.
Hi. My son is now 9 years old. I have ceased his RDSP payments as of this year due to financial reasons. The current value of his plan is $35,000 according to BMO. Can my son access this money when he turns 20 for education. Unfortunately my bank persuaded me against an RESP and we can no longer afford to contribute into one. If he can, what is he entitled to at age 20? Thank you.
If you have made personal contributions to an RDSP, you can access money from it, but the question will be how much and what will the penalties be, if any. When a withdrawal is made from an RDSP, the government will revoke as much as three dollars for every dollar you withdraw, but only to a maximum of how much they have contributed in the previous 10 years. Essentially, the government looks at the amount you withdraw and, if the amount of Grant and Bond contributions you have received in the previous 10 years is equal to or greater than the amount you have withdrawn multiplied by three, they will revoke three times the amount you have withdrawn. If the amount you withdraw multiplied by three is greater than the amount of Grant and Bond contributions received in the 10-year period before the withdrawal, they will revoke the total Grant and Bond amount received in that 10-year period. Here is an example copied and pasted from another article I have written:
Example. If the government has contributed $45,000 in the previous 10 years and you withdraw $5,000, the government will revoke $15,000 ($3.00 for every $1.00 you have withdrawn). However, if you withdraw $20,000 instead of $5,000, the government will only revoke $45,000. Why? Even though a penalty of $3.00 for every $1.00 equals $60,000 the government only contributed $45,000 in the previous 10 years, so that is the maximum they will revoke.
If you don’t want to incur any penalties, you have to wait 10 years after the very last contribution is made by the government.
If a 10-year period elapses before your son goes to school and the government does not make any contributions to the RDSP during that time, there shouldn’t be any penalties when you make a withdrawal. If you restart contributions to the RDSP during the next 10 years and/or Bond contributions are received, there would likely be penalties. The question would then be how big of a penalty.
Hey I have a rdsp account and I’ve been searching every where to see if I can take the cash out early to put a down deposit on a house without losing anything… any response would be greatly appreciated
No, a withdrawal from an RDSP account to purchase a home would be subject to the withdrawal rules. The government would revoke $3.00 for every $1.00 you withdraw or, if 3 times the amount you withdraw is greater than the amount they have contributed in Grants and Bonds in the 10-year period ending the date of the withdrawal, the government revokes the total amount of Grants and Bonds contributed in that 10-year period.
Example: A person withdraws $15,000 and $60,000 in Grant and Bond contributions were received in the 10-year period. $3.00 for every $1.00 withdrawn would be $45,000. Since more than $45,000 was received in Grant and Bond contributions in the previous 10-year period, the government would revoke $45,000. However, if only $25,000 in Grant and Bond contributions were received in the previous 10-year period, they would revoke only $25,000.