Once again, I will try and do the impossible and explain the types of payments you can take out of an RDSP in a clear and understandable way. For any of you who have been visiting this blog often and following the progression of the RDSP, you know that this is not an easy task. The terminology and formula’s associated with payments from an RDSP often create confusion amongst people trying to learn about the plan.
So, wish me luck.
In this post I will refrain from using the official terminology of Disability Assistance Payments (DAPs) and Lifetime Disability Assistance Payments (LDAPs), and instead break down the different types of payments into 5 categories or scenarios. I will define what I mean by the “10 year rule” for those of you who are unfamiliar.
Definitions
10 year rule = if you receive any payments from the federal government in the form of the grant or bond, you will need to wait at least 10 years after the last grant or bond has been received before you start withdrawing from the plan. If you decide to withdraw before this ten year waiting period is up, you will have to pay back any grant or bond that has been received in the last ten years (not including interest).
Payment formula = some payments out of the RDSP must come out as determined by a formula. This formula (simplified) is “Total Amount in the plan” / divided by “Years expected to live”. ** Note that this is not the full formula, just a simplified version for clarity.
The Five Ways You Can Receive Payments:
1) No Federal Contributions: If someone opens up an RDSP and only contributes their own money into the plan (or the money contributed by friends and family) there are no restrictions on when you can withdraw from the plan or how much. Once you turn 60 years of age, minimum annual payments will need to start coming out of the plan, but you are still allowed to take out as much as you want, whenever you want. In this scenario you do not have to worry about the assistance holdback amount (or as we call it, the ten year rule).
Example – David decides that he will only put in his own money and deposits $15,000 at the age of 52. David could withdraw payment from the RDSP at any time and in any amount. At the age of 60, formula payments would begin coming out of the RDSP, but David could still take out larger amounts.
2) Annuity: If you would like to have even payments paid out over your lifetime, there is a provision in the legislation to allow for annuity payment. An annuity is where you make a lump sum payment to a financial institution who then pays you income for the rest of your life. In this case, you must still be conscious of the 10 year rule.
Example – Sarah’s family opened up an RDSP for her when she was 10 years old and contributed $1,500 every year. Once Sarah turned 40, she wanted to receive the same amount in payments every year and took out an annuity from a life insurance company that pays her $7,000 a year.
3) More Personal Contributions than Federal Contributions: If you (and friends and family) have put in more contributions into your RDSP than the federal government, you are allowed to take out lump sum payments above and beyond the formula. These lump sum payments will not start an annual payment and can be received before the age of 60. Once you reach the age of 60, minimum payments as determined by the formula above will begin to come out annually, although you can still take out lump sums larger than the amount determined by the formula. You will still need to take into account the 10 year rule for these payments.
Example – Katy and her friends were able to contribute $100,000 over 30 years by the time she was 45 and received $70,000 in federal Grant. Katy decides at 45 that she wants to take out $30,000 towards a down payment on an apartment. She withdraws the payment without causing an annual payment to occur.
4) Less Personal Contributions than Federal Contributions: If you have contributed less than the federal government into your RDSP, you can never take out payments that exceed the amount determined by the formula. With this type of payment you must always take into account the 10 year rule. Within this scenario there are three options:
- You wait until 60, at which point payments determined by the formula are paid out each year.
- You decide you want to start receiving payments before the age of 60, and you start the annual payments early. Ex. John decides at 55 he wants to start receiving annual payments determined by the formula, and thus instigates these payments.
- You decide you want to receive a one-time payment that will not instigate annual payments (between the ages of 27 and 58). Because you have contributed less than the federal government, you can take out a one-time payment but it cannot exceed the amount determined by the formula.
Example – Since he turned 19, Tim has only ever received the $20,000 in Federal Government Bond. Tim decides at the age of 56 that he wants to start receiving payments from his RDSP. At this point, payments as determined by the formula begin to come out every year.
5) Shortened Life Expectancy: If the person has a shortened life expectancy (within 5 years) the formual does not apply and they can take out payments of any size. ** Must still adhere to the 10 year rule.
Example – Connie had an RDSP set up for her when she was 10 years old, and her parents have deposited $1,500 into her account every year for 10 years allowing her to get $35,000 in Grants. At 30 years old, Connie finds out she has less than 5 years to live. Her doctor certifies this diagnosis for the Canadian Revenue Agency, and Connie starts taking out payments of any size from the plan.
Important – It is up to the financial institutions as to whether they will allow lump sum payments (other than the formula payments) to come out of the plan. It is important that you speak with your financial institution and make sure they allow you to take out these types of payments if this is how you want to use the RDSP.
The end.
Please let me know if this explanation is clear and understantable. If it is not, I will keep trying until it is. Thank you again to everyone for all your feedback. I hope this has been helpful.
31 comments
Comments feed for this article
August 21, 2009 at 1:36 am
@curtisincalgary
What happens if a disabled person loses the Disability designation over the course of their lifetime? I am thinking specifically about a diagnoses of Autism that is looked at every 3 years or so.
August 24, 2009 at 3:28 am
jackstyan
Curtis,
If a person has an RDSP and loses their disability tax credit designation, they have a period of time to appeal. Thereafter, their RDSP is collapsed, any grant or bond received within 10 years returns to the federal government and the remainder becomes an asset of the individual.
August 21, 2009 at 7:29 am
jane tilton
Thank you Doug for your explanation, things are beginning to make sense!
My first question is about an annual withdrawal when the RDSP holder is still receiving EAPWD in the Prov. of BC. If the withdrawal amount causes the allowable amount of bank assets, ($3000 in BC) to be exceeded would the government then claw back the EAPWD payments untill the bank asset amount is again under $3000? Or are the withdrawn, RDSP funds treated seperate from bank assets. All the information about RDSP withdrawals talk about annual payments not monthly payments. If funds are going to be withdrawn to help with monthly expenses or to help raise our loved ones out of poverty, an annual payment looks like it may cause problems for those individuals still on EAPWD.
My second question is about withdrawals and continued contributions. Example: we put $100,000 into our adult daughter’s RDSP and we’re making regular $1500 contributions, to receive the full grants. Could there be withdrawals made from the account to help with monthly expenses and still allow us to contribute and receive grant moneys? (and not lose previous years grant moneys)
Jane
August 24, 2009 at 2:17 am
jackstyan
Jane,
Both good questions.
On the former, the simple answer is that the BC Government has not adjusted the $3,000 cap on liquid assets. It has remained the same for many years and an increase or indexing it would make some sense. We will raise the question, but encourage you to do the same if you get an opportunity. It should be possible for the funds however to come out of an RDSP on a monthly basis. While the rules require a set amount in a year, they don’t prescribe how it can come out. I assume that the financial institutions will permit this – its just a matter of setting up a regular payment once the time comes.
I’m afraid the answer to your second question is also no. Any withdrawal (payment) from an RDSP is comprised of contribution, grant/bond and income. This means any withdrawal consists of some part of grant/bond and therefore triggers the repayment of grant/bond received in the past ten year. The federal government is aware of this problem but wants the plan in operation before making changes – there is a committment to reveiw after 3 years and withdrawals and the “ten year rule” will no doubt be on the list to look at.
August 21, 2009 at 4:52 pm
Sunny
Can you please provide an example or link to the full formula for these two situations? Be as mathematical as required.
* You wait until 60, at which point payments determined by the formula are paid out each year.
* You decide you want to receive a one-time payment that will not instigate annual payments (between the ages of 27 and 58). Because you have contributed less than the federal government, you can take out a one-time payment but it cannot exceed the amount determined by the formula.
September 9, 2009 at 4:41 pm
Doug Brodhead
Hi Sunny,
The formula for lifetime disability payments is:
A/(B + 3 – C) + D
where:
A = is the fair market value of the property held by the plan trust at the beginning of the calendar year (other than annuity contracts held by the plan trust that, at the beginning of the calendar year, are not described in paragraph (b) of the definition “qualified investment” in subsection 205(1)),
B = is the greater of 80 and the age in whole years of the beneficiary at the beginning of the calendar year,
C = is the age in whole years of the beneficiary at the beginning of the calendar year, and
D = a periodic payment under an annuity contract held by the plan trust at the beginning of the calendar year.
August 23, 2009 at 7:50 pm
Shane
Jane, good question and I’m curious as to what Plan comes back with here.
All I’ve seen for BC is a blanket statement that RDSP assets and RDSP income
would not be considered for disability income assistance. But I’ve seen no
exemption from the $3,000 asset requirement, which they hopefully index at
some point. I don’t really see how they would do it though.
Let’s say you withdrew a large amount from an RDSP because you had tax room
and moved it to an TFSA account where your gains are taxed more
preferentially. If the withdrawn asset is exempt, is the earned interest
and capital gains in the TFSA also exempt? Tracking those flows would be an
administrative nightmare.
I don’t think there’s anything preventing a monthly withdrawal though. The
formula is annual, the min and max requirements have to be met by 31-dec of
the year but the legislation says nothing about when during the year the
withdrawals must occur. Even so though, the monthly withdrawal amounts for
someone who has received the full $70,000 and $20,000 of CDSG and CDSB plus
their own contributions could easily exceed the $3,000 cap on a monthly
basis. So this should be interesting.
September 9, 2009 at 10:29 pm
stacey
If you dont have money to contribute to the rdsp do you still qualify for a government grant, I am on provincial dis, do we not qualify for a grant with or with out this, as so we can start our own bussiness
September 10, 2009 at 5:36 pm
Doug Brodhead
Hi Stacey,
Unfortunately the Grant is based on contributions to the plan, and cannot be received unless personal contributions (could be friends and family as well) are deposited in the RDSP. If you are not able to receive the Grant, you might still be eligible for the $1,000 Bond which is based on income and does not require any contributions into the plan, but can be received automatically for up to $20,000 over the plans lifetime.
If you have an income below $21,816 you are eligible for the full $1,000, and can still receive a portion of the Bond if your income is below $38,832.
October 27, 2009 at 7:38 pm
Teresa
So, if I have understood your explanation correctly, if I have made more personal contributions than government contributions, I can make withdrawals of any amount even if they are larger than the payment formula?What if the amount I want to withdraw would dip me into the federal contributions? Would that not limit the amount I can withdraw?
Second, if I have made more personal contributions than the government, and I make a withdrawal before 10 years is up on the receipt of grants and bonds but the withdrawal is within the margin of contributions greater than those of the government, will I still have to pay back the grants and bonds? (This is the part that is not clear to me.)
Thanks!
Teresa
October 28, 2009 at 5:32 pm
Doug Brodhead
Hi Teresa,
Good questions.
1) If you have made more personal contributions than government contributions, you can make lump-sum withdrawals larger than the payment formula. But, you must still take into account the 10 year rule. So, if you have received any grant and bond in the last ten years you cannot withdraw from that portion, and if you do withdraw any money (even $1) the last ten years of grant and bond will be paid back to government automatically.
For example, let’s say I have been putting money into my RDSP for 20 years and have received 20 years of grant and bond. In those 20 years I have contributed more in personal contributions than the federal government has contributed in Grant and Bond. Because I have put in more than the federal government I am allowed to take out lump sums at any point. The catch is, if you take out any money before that 10 year waiting period is over, any grant and bond received within the last ten years will be taken back. So, if I wanted to benefit from the full amount of federal money, I would have to wait another 10 years, after my 20 years of contribution, at which point I could take out lump sums (above the formula) in any amount without any clawback.
2) Each dollar withdrawn from the plan is considered to be made up of all three parts: grant/bond (government contribution), personal contributions, and growth/interest. So, if you do withdraw any money from the plan, you will need to look back 10 years, and any grant and bond received within that last ten years will be repaid to the government (even if you withdraw from your personal contributions).
November 1, 2009 at 4:58 pm
Jason Kaye
Recently I had a comment run in the Globe & Mail under the title I LOST IT ALL, what I lost is 25 of my best earning years. I am fortunate to have a good disability plan that will allow me to take advantage of the RDSP and if I stick to my plan I will be okay at retirement. I am quite disappointed in the mainstream/business media for not talking about the RDSP more. This is a godsend for people like me (43, single, suffering from MS and can no-longer work) to save for their retirement so they will not have to rely on programs like GIS and in Alberta AISH. I have even talk to people with MS like myself that don’t see the opportunity the RDSP can afford them with tax exempt savings and have been pushing my local chapter to promote it even more.
Thank You Plan for helping bring the RDSP to us and allowing me to focus on my lifestyle and not my finances.
November 4, 2009 at 7:05 pm
Ken
We set up an RDSP plan last year for our son. We are now looking at revising are wills to allow for the plan to be added to by our estate if required.
The lawyer we are working with has informed us that everthing he can see would place the plan in question as to should we do this. He has stated that every $ our son will receive from the plan will be deducted from his disability amount. This would mean he is no better off and forced to live in poverty.
I thought the idea was for this plan to be the alternative to the word used earned income thus allowing them some additional income to offset increases in living costs. We live in BC are thing here somehow differant?
Thank you.
Ken
November 4, 2009 at 7:28 pm
Doug Brodhead
Hi Ken,
Unfortunately you have been misinformed. The BC Government has amended the Employment and Income Assistance for Persons with Disabilities Act Regulations to exempt the RDSP as an asset and income. This means your son can save as much as he wants in the RDSP, take out payments of any amount, and spend it on whatever he wants without affecting his disability amount.
Here are the specific provisions within the Employment and Income Assistance for Persons with Disabilities Regulation that outline the RDSP as an exempt asset and income, as well as the Press Release from the BC Government detailing these changes.
Asset, section (jj):
http://www.eia.gov.bc.ca/PUBLICAT/VOL1/Part3/3-5.htm#10
Income, section (xxxiv):
http://www.eia.gov.bc.ca/PUBLICAT/VOL1/Part3/3-5.htm#b
Press Release:
http://www2.news.gov.bc.ca/news_releases_2005-2009/2007EIA0025-001533.htm
If you have any further problems, please do not hesitate to contact us.
November 4, 2009 at 7:41 pm
Jason Kaye
Hi Doug,
You are right and I believe Alberta is doing the same and many other provices have or are looking at doing the same.
November 12, 2009 at 1:45 pm
Mary Louise Luck
I’m just gettin go board here and have lots of reading to do. Looks like a great site.
It’s not clear to me that persons with a disability who are in total care will qualify for the exemption from clawback under the RDSP. Do you know the status of these persons in New Brunswick? My question also applies to the trust fund of up to $75,000 that families can put in place for their disabled adult child.
Thanks.
Mary Louise Luck
November 12, 2009 at 9:53 pm
Lillian
Hi Doug,
Thank you for explaining about the LDAPs and the DAPs. I noticed on CRA’s website, they speak about a 3rd type of payment in addition to the LDAP and DAP…” The RDSP issuer may offer plans that allow a third type of payment. The RDSP issuer may allow the RDSP holder to request disability assistance payments (DAP) to be made to a beneficiary that are separate from lifetime disability assistance payments (LDAP).”
Could you please elaborate or explain what this 3rd type of payment is?
As well, could you please explain annuities in relation to RDSPs?
I was also reading in one of PLAN’s articles that “it is up to the financial institutions as to whether they will allow lump sum payments to come out of the plan”…is this referring to the DAP or to the 3rd type of payment?
Thank you!
November 13, 2009 at 5:48 pm
Doug Brodhead
Hi Lillian,
This 3rd type of payment falls under my category of “Less Personal Contributions than Federal Contributions”, and specifically the 3rd bullet which states: “You decide you want to receive a one-time payment that will not instigate annual payments (between the ages of 27 and 58). Because you have contributed less than the federal government, you can take out a one-time payment but it cannot exceed the amount determined by the formula.”
As for annuities, you would want to check with your financial institution as each annuity is different and will work differently in the plan. But, in a nutshell, an annuity is where you exchange a lump sum of capital for a lifetime income (periodic payments).
As for your third question, the LDAP (formula payment) is the only type of payment which the financial institution must offer. Having said this, it does not seem that most financial institutions are restricting the type of payments, but it is still important that you identify that you will want to take out lump sum payments.
November 19, 2009 at 6:35 pm
Karen
Help,
I am 49y/o and was injured in an auto accident, for which I received a settlement last year, which I have been supporting myself with since that time. This money will run out in about 5 yrs, at the present rate of my expenses.
This year I opened an RDSP and deposited $1,500, and applied for the government grant and bond.
I have refrained from putting all my money(under 200,000) in the RDSP for a couple different reasons.
1- the savings account in the rdsp pays far less interest than a few of the high interest savings accounts on the market, where my money is presently.
-i do not want to get into anything risky like the stock market or mutual funds
- I do not want to lock my money into a low interest GIC
(these were the only options offered to me)
and most importantly
I need the access to the money for day to day living.
I am confused and wondering- SHOULD I DEPOSIT AN ADDITIONAL FUNDS INTO THE RDSP BEFORE DEC 31/09 ?(IF SO, HOW MUCH? and WILL IT PREVENT THE 10 YR NO WITHDRAWL RULE FROM APPLYING,?
in my case, when I then decide to put all my money into the RDSP, and need to make regular withdrawls to support myself.
WHAT TYPE OF PLAN SHOULD i SET UP?
I am living in ONT, and have recently been informed that if all my money(under 200,000) is in an RDSP, I would be eligible to apply for ODSP (Ontario Disability support Payments) from the government.
My present plan is to transfer all the money into RDSP, next yr, when a small GIC i have,matures in Nov., AS IT PRESENTLY DISQUALIFIES ME FROM ELIGABILITY FOR ODSP, and is not transferable into RDSP
Thank you for your time and help.
November 20, 2009 at 8:09 pm
Doug Brodhead
Hi Karen,
I will try and address some of your concerns, and provide you with some information that hopefully will help you make an informed decision as to how you want to use the RDSP. One, the most important questions you need to ask is “how do I want to use the plan?”. For some people, they may open up an RSDP to save for the long-term and capitalize on the federal money available over 30 years. For others they may want to take advantage of some of the federal money, but maybe take out a little bit earlier from the RDSP. In some cases you might even have people who want to forgo getting the grant and bond, and instead use the RDSP for tax-free growth and to shield it from affecting their disability benefits.
The key point that you will want to remember is this, “as soon as you receive any government money into your plan, you must wait 10 years after the last grant and bond has been received before you begin to withdraw. If you withdraw before this 10 year waiting period has gone by, any grant and bond received within the last ten years will be paid back to government”.
For example, if I contribute into my RDSP for 20 years and receive 20 years of Grant and Bond, I need to wait another 10 years before I start to withdraw if I want to keep that full 20 years of grant and bond. If, in this scenario, I decided after 20 years that I had waited long enough and began to withdraw payments, I would lose the last 10 years of grant and bond (between the years of 11-20). I would still keep the first 10 years of grant and bond, and any interest.
So why is this 10 year rule important?
If you decide that you don’t want to receive any grant and bond into your plan, you can contribute money one day and spend money the next, no restrictions. But, as soon as you receive government money, you will need to wait 10 years after the last grant and bond has been received before you withdraw, if you want to take advantage of that money. For instance, if you received the grant and bond for one year at age 49 and wanted to keep that grant and bond, you could not withdraw until ten years later.
For example, if you have received the grant for 2009 (which it sounds like you have), and you reach the age of 55. For arguments sake, lets say you decide that you can’t wait until 60 to begin withdrawing payments, and take out a payment at the age of 55. Because you have received a grant in the last ten years (at the age of 49), that $3,500 grant would be paid back to the government, but any interest and your personal contributions would remain, and you could continue to take out payments. If you reached the age of 60 before you started taking out payments, you would begin taking out payments and would keep the 1 year of grant that you had received at the age of 49 (because it was in your plan for more than 10 years).
The question then becomes, “do you want to benefit from the one year of grant, or do you want to start using the plan now?”. Your choice. If you are unsure, you can always receive the grant and then if you decide later on you need to take out payments before the age of 60, they will simply take the grant back (and you get to keep the interest).
If I understand correctly, and you have already received the grant for 2009 into your plan, it will not matter whether you put in any contributions before December 31st, 2009, as you have already maxed out the amount of grant you can get for 2009 and you are allowed to put in personal contributions up until the age of 60 (and it won’t affect the ten year rule). Make sure to check and see whether the grant you received was for 2009 or 2008. If you contributed before March 2nd, 2009, because of the extension it would be counted for your 2008 grant. If you contributed after March 2nd, 2009, it will instigate the 2009 grant (up until December 31st, 2009).
As for ODSP, the RDSP is an exempt asset and income for the determination of eligibility for ODSP benefits. This means you can have an RDSP and still be eligible for these benefits.
I would encourage you to speak with a financial planner, as your situation is quite complex and will require a professional who can review all the relevant information around your situation.
November 20, 2009 at 4:50 am
Candida Clarke
I am not sure I understand the withdrawal and penalty formulas. Can someone answer this question for me?
My husband has a disability and we sometimes need ODSP, we would also like to save for a house, but will need more than the ODSP asset limit allows to qualify for a mortgage because our combined income is low. Since the RDSP is exempt as an asset it would seem that this would be a good place to save money for a downpayment, however, not wanting to jeopardize the bonds and grants I want to know if the following is possible:
If we contributed over the 1500 that would be applicable for the grants and bonds, could we access the other money without penalty? EG 4000 in contributions x 5 years = 20,000 but grants and bonds would only be calculated on 7500 of that, so would we be able to access the other 12,500 without penalty?
If not, is there any chance the government is going to change the rules surrounding this – as it seems to me that because of the ODSP asset limits and most people not being able to afford to contribute to both an RDSP and an RRSP (and be able to participate in the federal home buyer’s plan), that this would be a good way for the government to help make home ownership more accessible to people with disabilities. Aside from creating a similar home buyer’s plan with the RDSP!
November 20, 2009 at 8:19 pm
Doug Brodhead
Hi Candida,
If you decided to receive any grant and bond, you must wait ten years after the last grant and bond has been received if you want to take full advantage of all the federal money. Many people have asked me, “if I take out money from my portion of the RDSP (personal contributions) and don’t touch the grant and bond portion, will it still trigger the clawback?”. The answer would be yes. The way the federal government has designed the plan, every dollar withdrawn from the RDSP is considered to be made up of all 3 parts; grant + bond, personal contributions, and interest. Even if you only took out $1 from your plan, if you have received any grant and bond in the last ten years, that last ten years of grant and bond would automatically be repaid to government.
There is going to be an opportunity to provide feedback and recommendations to the federal government. They have committed to doing a three year review of the RDSP (in two years time) where they will receive recommendations and feedback from the community. PLAN has been tracking all the feedback and comments of families across Canada and will be putting forth recommendations at the 3 years review to ensure as many Canadians as possible benefit from the plan.
November 20, 2009 at 8:51 pm
Jason Kaye
I am not planning to touch my RDSP till 60, at that time will I be able to keep some of my RDSP in mutual funds and the rest in a interest bearing account. Then have my withdrawls come from the Interest account to start and move the from the mutual fund at my choossing like a RRIF like product?
November 21, 2009 at 4:36 am
Dennis
Jason
If you have two or more investments (i.e. an interest account and some mutual funds) in your RDSP you will be able to direct which of the accounts the withdrawal will come from. This will allow you to sell your mutual fund assets when it is best for you.
November 21, 2009 at 9:03 pm
Marie
So the best senerio is…. that we receive our last grant at age 49. Ten years later or age 60 we can start to withdraw.
Doesn’t matter ANY redemption prior age 49 – the grant will have to be paid back.
Unless the child is 5, contributes & receives max amounts (which are for 20years). At age 25 the person waits until 35 then can withdraw without repayment.
Quite complicated.
The bottom line is any older individual has to wait until 60 if theyhave received any government bonds/grants up until 49.
November 23, 2009 at 7:37 pm
Lillian
Hi Doug,
I’m still a little confused about the payments starting at age 60 for those people who were not eligible for the bonds/grants as they opened the RDSP at age 50 or over. Since there are no government contributions, they are allowed to take as much money in/out of the RDSP whenever they want (dependent on how it is invested), but what happens when they turn 60? Is the amount of money then limited to how much the payment schedule is even if there were no government contributions?
Thanks.
November 23, 2009 at 9:46 pm
Doug Brodhead
Hi Lillian,
Even if you have not received any government contributions, and you turn 60, you will have to take out a “minimum” amount as determined by the formula. This does not mean that you cannot take out more than the formula amount, you are just required to take out “at least” that amount. If someone has received government grants and bond but have contributed more than the federal government, they also can take out “above” the formula amount”. It is only if you have put in less than the federal government that you must take out no less and no more than the formula amount.
Does this clarify your question?
November 24, 2009 at 7:17 am
Alan
Darn I had a comment all written up and I misclicked and lost it all. Ok I will write this again quickly. Doh! If someone could please clarify this for me:
Let’s say I start contributing at age 25. By age 45, I have contributed $70,001 and the government had contributed $70,000 (so I’ve put in $1 more). I stop contributing now, and wait 10 years. After 10 years the account is worth $450,000 and there is no holdback on the account. Does this mean, since I have contributed more + no holdback, that I could withdraw the ENTIRE amount of $450,000 in one big lump sum and close the account?
Thank you.
January 6, 2010 at 10:07 pm
Jennifer
I’m wondering about RDSPs for those with shortened life expectancies. My son is just a baby and he has Cystic Fibrosis. Currently the median age of survival for CF is 35 years old. That means my son could live to be 35 but there’s also a chance he could live to a ripe old age. It just depends on how his disease progresses throughout his life. Assuming we contribute $1500 per year until he’s 21 years old, how can he best take advantage of the RDSP?
January 7, 2010 at 5:10 pm
Doug Brodhead
Hi Jennifer,
It’s a very good question, and one that I wish I had a better answer to. Currently, if someone has a shortened life expectancy (within 5 years), they are not restricted by the formula when taking out payments. The downside is, if you receive and federal money, you must still abide by the 10 year rule, and wait 10 years after the grant and bond has been received before withdrawing, even if there is a shortened life expectancy. This is problematic for some people, as it means they still must wait a long time before they can begin withdrawing without penalty.
From your scenario above, it would probably make sense to plan longterm and if something happens where life expectancy is shortened, then you simply use the 5 year life expectancy provision and start taking out money. If you haven’t waited the full 30 year period you might have to pay back some of the federal grant and/or bond, but you will keep any federal money that has been in for more than 10 years, all personal contributions and all the interest. Would be worth speaking with a financial advisor to see what they suggest.
This is an area that will need to be addressed on a policy level and will require some advocacy to look at changes, as many people have brought forward potential issues with this part of the plan. I would keep in touch with PLAN as we will be putting forward some recommendations when the 3 year review of the program starts. Any input or feedback you have on this issue would be really valuable as we are keeping track of the biggest issues and concerns as the RDSP continues to roll-out.
November 4, 2009 at 7:46 pm
Doug Brodhead
Hi Jason,
You are right. Currently, 9 provinces/territories have announced they will be exempting the RDSP from affecting eligibility for disability benefits. This includes BC, Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, Newfoundland and Labrador, Yukon and Northwest Territories. Quebec and New Brunswick have announced that they will be exempting the asset, but restricting the income (Quebec – 305 a month, NB – $800 a month). PEI has exempted the RDSP up until the person reaches the Low-Income Cut-off, and Nunavut has yet to announce. If you would like to see the direct links to the regulatory links you can go to our main site at http://www.rdsp.com and look under “provincial implications”.