FAQ

Are withdrawals from my RDSP taxable?

When you take money out of your RDSP, some of it is taxable:

• The amount that you have put in, or someone has contributed on your behalf, is not taxable.
• The amount that the government has put in for Canada Disability Savings Grants and Bonds is taxable.
• The investment income earned in the plan is taxable.

When you take out money, the financial institution will tell you how much is taxable based on these rules. You must declare this amount as income when you file your taxes for the year that it was taken out.

Learn more from the Government of Canada website on tax payable.

What happens if I lose eligibility for the Disability Tax Credit?

Many people are only approved for the Disability Tax Credit for a certain number of years. To keep your eligibility, you must re-apply to the Canada Revenue Agency. Applications can take a few months to process, so you should apply at least six months before your Disability Tax Credit is set to expire. You cannot reapply sooner than one year before the expiry date.

Learn more about what steps to take in Losing Disability Tax Credit (DTC) Eligibility - RDSP.

When can I withdraw my money?

There is no age limit on withdrawals, but when you turn 60, you have to start taking out minimum withdrawals. These withdrawals are called Lifetime Disability Assistance Payments (LDAPs). The LDAP amount is based on a formula.

One-time withdrawals, if allowed by your financial institution, can occur any time. You may have to pay back some grants and bonds unless they have been in the account for longer than 10 years. There are also limits on the amount you can take out based on a set formula. Learn more from the Plan Institute on How Do You Get Your Money Out.

When do I start receiving grants and bonds?

It takes about 6 weeks from when you apply to start receiving bonds. It also takes about 6 weeks from the date of a contribution for the government to deposit matching grants in the account. Grants are deposited on the last day of the month. If it has been three months and you have not received money that you are eligible for, contact your financial institution or Employment of Social Development Canada.

What is the best way to save? An RDSP, a Registered Retirement Savings Plan, or a Tax Free Savings Account? Should I save in more than one type of account?

These are all good savings vehicles, for different reasons. The answer depends on your financial situation, age, and the goals you have.

If you receive other government benefits, the RDSP is a very good plan to have and optimal for people living on low incomes. The money in it does not count as a source of income for almost all federal and provincial programs. This means, in most cases, that it will not reduce other government benefits you receive. The most that you, or others who are helping you, can deposit into an RDSP is $200,000 over the course of the plan.

The RDSP is a long-term investment. You should expect to keep your money in for 10 years or more.

A Registered Retirement Savings Plan (RRSP) is also a long-term savings plan. But if you have a low income and pay little or no tax, it has few advantages for you. Learn more about Retiring on a Low Income.

A Tax Free Savings Account (TFSA) provides more flexibility for withdrawals in the short term. For instance, if you need money for an emergency, it is better to take it out of a TFSA than a Registered Disability Savings Plan.

There are different investment options available in each type of account. Also, the fees your financial institution charges can vary. You will need to speak to your financial institution or a financial professional to understand the best options for you.

If you are receiving income assistance or disability benefits, income from a TFSA or RRSP may not be considered exempt income. For example, in B.C., investment income earned within a month must be reported as unearned income for that month’s report. The investment income will be taken off your next monthly income assistance payment.

It is always good to double and triple check how your particular government program treats the TFSA and RRSP, so you do not risk losing your benefits.

Learn more about Tax Free Savings Accounts

Learn more about Registered Retirement Savings Plans

I have a shortened life expectancy. Can I take money out of my RDSP early?

When a medical doctor certifies that an RDSP beneficiary has a life expectancy of 5 years or less, that is considered a shortened life expectancy for RDSP purposes. The RDSP becomes a Specified Disability Savings Plan (SDSP).

Once the Specified Disability Savings Plan is in place, early withdrawals will not trigger repayment of government contributions, even if they occur before 10 years. However, when an RDSP becomes an SDSP, no further contributions are allowed. Any unused grant or bond entitlements will not be saved up for the years where the SDSP designation is in place.

If you survive longer than 5 years, the SDSP designation stays in place unless you ask for it to be removed. A plan holder can reverse an SDSP election at any time by giving written notice to the financial institution. The financial institution must then contact Employment and Social Development Canada. Then the government can start contributing grants and bonds again.

Learn more about shortened life expectancy from the Government of Canada website.