Blog » Should the Federal Government Enable a rollover of an RESP to a RDSP?

Should the Federal Government Enable a rollover of an RESP to a RDSP?

Families have been asking about the possibility of rolling over a Registered Education Savings Plan (RESP) to a Registered Disability Savings Plan (RDSP) almost since the RDSP was launched in 2008.   Generally speaking, the situations that families have brought forward fall into one of two groups:

  • While their child was identified as having special needs at a relatively young age, they were optimistic about their child’s future educational possibilities and/or they believed that with treatment (e.g. A.B.A.) their child’s current condition might be remedied sufficiently to permit post-secondary education.
  • Their child was typical until the late teen or early adult years when an accident, injury or illness had an impact on their child making it unlikely that they would continue their education.

An RESP is usually the best way to save for a child’s future education costs.  In the past, the RDSP did not exist.   Even with the RDSP, however, an RESP is a better way to save for future education in most instances.  While it might have some advantages over an RESP – more generous federal contributions and fewer limitations on withdrawals – the RDSP is not designed for education purposes – it is a much longer term savings plan.

Why not just wind up the RESP and open an RDSP with the funds?

One of the reasons that families might not have considered this option is the complexity of taking funds out of an RESP.  There are four types of withdrawals from an RESP:

  • Return of Contributions – original contributions can be paid to the beneficiary or returned to the contributor tax free.
  • Education Assistance Payments – payments made to the contributor or beneficiary, when the beneficiary is enrolled in a qualifying program.  These payments are partly taxable to the beneficiary.
  • Accumulated Income Payments – can be made when one of the following conditions are met
    • 10 years have passed since the RESP was established, all beneficiaries are 21 years and none of the beneficiaries are eligible to receive an Education Assistance Payment;
    • 35 years have passed since the RESP was established, unless the RESP is a specified plan in which case 40 years have passed since the RESP was established; or
    • all the beneficiaries are deceased.

Accumulated Income Payments do not include contributions returned to the beneficiary or contributor, federal government contributions,

Accumulated Income Payments incur regular tax plus an additional 20% tax, or 12% in Quebec.

  • Payments to a Designated Education Institution – just as the name sounds.  These payments are generally recommended as a last resort so that funds that can’t be utilized for a beneficiary are directed towards a designated educational institution.

(Click here for more RESP details)

In the situation where an RESP is not going to be used for the education of a child, the original contributions may go to the contributor or the beneficiary (untaxed).  The federal government contributions return to government.   The remainder must either become an Accumulated Income Payment (and face regular tax plus a premium) or be paid to a designated educational  institution.


Let’s consider a scenario where a family contributed $36,000 ($2,500 per year, which is the minimum necessary to receive the maximum annual $500 in Canada Education Savings Grants) and received the lifetime maximum $7,200 in Education Savings Grants.

Contributions began in the child’s first year and continued to his/her 15th year.  (The Grant can be received until the child’s 17th year.)  The investment earned an average annual return of 5%.  When the child is 21 the RESP has accumulated $88,557 consisting of:

Original contributions:                                   $36,000

Canada Education Savings Grants:              $7,200

Investment income:                                       $45,357

RESP Total                                                           $88,557


Let’s assume that at 21, it is clear that the young adult will not be utilizing the funds in the RESP for his/her education.  What will happen?

The family can have their original contributions of $36,000 returned to them or to the beneficiary tax free.  The Canada Disability Savings Grants of $7,200 will be returned to the federal government.

The remainder, $45,357 can be paid to the family or the beneficiary as an Accumulated Income Payment.  The total amount is taxable – although it can be offset by an RRSP contribution – at regular rates plus an additional 20% tax (12% in Quebec).   This amounts to a return of the investment income on the 20% federal government contributions, assuming the family contributed the minimum amount to get the Canada Disability Savings Grant.

Ignoring the regular income tax, the family or beneficiary would have $72,285 returned to them.

If $6,000 of the $72,285 were contributed to an RDSP,  (assuming the beneficiary is 21 and has had income below $83,088), the federal government would pay grants of $3,500/year for the years 2008 – 2011.  That would amount to a total of $14,000 in Canada Disability Savings Grants and a total of $20,000 in the RDSP.  The family could contribute the remainder ($66,285) to the RDSP or save it for future assistance and/or RDSP contributions.  The $14,000 in Grant would have almost made up the $16,271 ($7,200 plus $9,071) that was returned to the federal government.  In 2012, with five years of carry forward on the grant, the Grant received with a $7,500 contribution will be $17,500.

The federal government made sure to protect all these saving plans and grants from cyber criminals, they provide government cyber security against all types of cyberattacks. See this page for details.