RDSPs: Plan your 10 years

Next year is an important one for clients eligible to receive the Registered Disability Savings Plan (RDSP).

The federal government introduced the RDSP in 2008. To encourage people to use the registered plans to save, the government pays Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs), and those can be carried forward for up to 10 years if contribution room remains unused. As such, 2018 is the final year for clients to collect carried-forward CDSG and CDSB amounts for 2008, if that’s when they opened an RDSP for which they have carried-forward amounts.

What you need to know is how Canadians can receive these carried-forward grants and bonds, and maximize the contributions for which they were, and are still, eligible.

Example:

Robert’s income: $10,000 in 2016 Year of birth: 1989 Level of disability: Eligible for DTC since birth and no improvement possible Year RDSP opened: 2018

Maximum period for carrying amounts forward: 10 years

To determine how much in grants and bonds can be paid into a plan in a year, please refer to this previous article, which is about planning for the future of a disabled child.

If an individual were, and still is, eligible for the RDSP but has never received the incentives, their rights for the past 10 years have accumulated—depending on the type of matching grant, those rights accumulate at a rate of 300%, 200% or 100%.

Matching grants are paid in descending order: first, using matching grants at the highest rate, from the oldest to the most recent, followed by grants at the lower rates.

However, the CDSG amount paid in a year cannot exceed $10,500, with a cumulative total of $70,000. CDSB amounts are paid into the plan regardless of contributions to it up to a maximum of $11,000 in a year and $20,000 in total.

In Robert’s case, his rights have been accumulating since 2008. So, he could collect the past 10 years of grants as well as those for the current year. As at Jan. 1, 2018, he has accumulated $15,000 in CDSG matching grants at 300%, $20,000 in CDSGs at 200%, and $10,000 in CDSBs. With the grant for that year, the total CDSG amount paid in one year cannot exceed $10,500. As such, all CDSG amounts at 300% are collected in two years. For CDSG amounts matched at 200%, as the first grants only start to be collected in 2019, the 200% match for contributions carried forward from 2008 will disappear in 2019.

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You would need $3,500 in contributions to maximize grants in 2018, $4,000 in 2019 and $5,000 in 2020. No grants have accumulated with a 100% match, as income is below the maximum threshold.

To make it easier to understand for Canadians who already have an RDSP, consider this: at the start of each year, Employment and Social Development Canada (ESDC) sends a statement of entitlement to inform them the amount of contributions required to maximize the amount of the grant that could be paid over the calendar year.

Proportional repayment rule

If RDSP holders plan to make withdrawals, you also need to look at what has been happening the previous 10 years in the plan. If withdrawals are requested from a plan, they are subject to the proportional repayment rule, and the plan administrator must repay to the government the lesser of these two amounts:

• three times the amount withdrawn for the current year (e.g., in 2018) or
• the assistance holdback amount. (In other words, the amount of all the grants and bonds that have been deposited into the plan over the past 10 years (e.g., between 2008 and 2017).

Since the assistance holdback amount is calculated based on months at the time of withdrawal, it’s recommended that clients wait 10 years after receiving grants before making a withdrawal from the plan. Then, no amounts will have to be repaid to the government, as the assistance holdback amount would be nil.

To continue with our example, Robert decides to withdraw $3,000 at the end of 2020 to pay unforeseen expenses. In 2020, government contributions total $44,500. As a result, the plan administrator will have to withhold $9,000, or the lesser of three times the amount withdrawn and all government contributions. To prevent proportional repayment from applying, he would have to wait until 2031 to not repay the government’s contributions in 2019.

David Truong

Tax & Estate

David Truong, Pl.fin, CFP, CIWM, M.Fisc, works as a senior consultant, expertise centre, at National Bank Private Banking 1859. He also teaches at McGill University.