Advisor calls on feds to lower RDSP minimum withdrawals

Ottawa should provide relief to Canadians who face mandatory withdrawals from their Registered Disability Savings Plans (RDSPs) during the current market disruption, says a financial advisor who specializes in helping clients living with disabilities.

Ottawa announced in mid-March that it would be lowering the annual minimum withdrawal amounts for RRIFs by 25% for 2020 as part of relief measures addressing the economic crisis caused by the Covid-19 pandemic. However, the federal government hasn’t offered similar assistance to RDSP holders.

“I don’t know how hard it is to provide a [partial] dispensation [for mandatory withdrawals] similar to what they’ve done for RRIFs for the RDSP,” says Ron Malis, a financial advisor with Reegan Financial in Toronto.

By the year in which they turn 60, RDSP beneficiaries must withdraw a minimum amount annually based on the market value of the plan on Jan. 1. An RDSP holder who had not made the annual minimum withdrawal before the recent market crash may face the possibility of liquidating investments held in the plan at depressed prices to make the annual minimum withdrawal amount.

When asked whether the federal government was considering a temporary reduction in RDSP withdrawal minimums, a spokesperson said the government recognizes that the pandemic may disproportionately affect Canadians with disabilities.

“Our priority will remain helping persons with disabilities maintain their health, safety, and dignity,” the spokesperson said in an email.

The spokesperson pointed to the launch of a special Covid-19 disability advisory committee — to be chaired by Employment, Workforce Development and Disability Inclusion Minister Carla Qualtrough — that will advise the government on gaps for people with disabilities and possible measures.

Malis calls the federal government’s lack of action so far on RDSP minimum withdrawal amounts “disheartening.”

“This is another example of people with disabilities getting the short end of the stick and being marginalized,” Malis says. “Without an alternative explanation that provides some substance, that’s the conclusion that I’ve reached.”

Malis points out that RDSP beneficiaries must begin making annual minimum withdrawals much earlier than RRSP annuitants do. RRSP annuitants can wait until the year they turn 71 to convert to a RRIF, with annual minimum withdrawal amounts starting the following year.

RDSPs are also subject to higher annual minimum withdrawal rates relative to RRIFs, as reflected in a chart Malis prepared in a blog post.

“If you have a RRIF and you’re managing your investments thoughtfully, your account is not going to erode so quickly,” Malis says. “With an RDSP, that’s pretty difficult.”

Malis says that while he understands RDSPs benefit from government contributions in the form of grants and bonds while RRSPs and RRIFs do not, “the people who have RDSPs have qualified for the disability tax credit, which is a reflection of [having] some pretty serious disabilities.”

People with disabilities encounter greater economic challenges relative to other Canadians, Malis argues — a state of affairs only exacerbated by the economic fallout from Covid-19.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.