How Do Payments/Withdrawals Work?

Generally, funds can be withdrawn from an RDSP anytime, but with some very important exceptions and restrictions.

A withdrawal from an RDSP is called a payment.  There are two types of payments from RDSPs:  Lifetime Disability Assistance Payments and Disability Assistance Payments.

 

a)   Lifetime Disability Assistance Payments

Lifetime Disability Assistance Payments (LDAPs) are regularly scheduled payments (at least once per year).  These payments must begin when the beneficiary turns 60, but can begin at any age.

These payments are limited by the following LDAP formula when federal government contributions have exceeded personal contributions.

A/(B + 3 – C) + D,

Where

  • A = the Fair Market Value of the RDSP assets on January 1 of that year, other than the value of locked-in annuities held in the plan;
  • B = the greater of 80 and the beneficiary’s age (in whole years) on January 1 of that year;
  • C = the beneficiary’s age (in whole years) on January 1 of that year; and
  • D = the total amount of periodic payments received by the RDSP in the year under a locked-in annuity held by the RSDP on January 1 of that year.

This formula also defines the minimum amount that can be withdrawn each year, whether government or personal contributions are greater.

When a Beneficiary is ready to begin to receive payments, he/she may purchase a locked-in annuity to be held in the RDSP.  An annuity is an arrangement in which a person exchanges a lump sum of capital for a lifetime income.

The LDAP formula amount does not apply if the Beneficiary has a shortened life expectancy (within five years) that can be confirmed with written certification from a medical doctor.  In this instance the full amount can be withdrawn.  The ten year rule still applies but the federal government is in the process of loosening the rules around its application.

Example:

Maggie is 40 and has $333,000 in her RDSP.  If she wants to begin Lifetime Disability Assistance Payments she can, provided the total of LDAPs plus any other withdrawals made during the year don’t exceed the LDAP formula:

$333,000/(80 + 3 – 40) + $0 = $7,653

If she wanted to begin LDAPs at $5,000 per year, she could because $5,000 is less than $7,653.

 

b)    Disability Assistance Payments

There are several forms that Disability Assistance Payments might take: flexible Disability Assistance Payments, beneficiary requested Disability Assistance Payments, and terminal illness Disability Assistance Payments.

Flexible – Disability Assistance Payments

These payments may be scheduled or unscheduled.

If personal contributions exceed those of the federal government then these payments are not governed by the LDAP formula.  That means the full amount of the RDSP (minus any holdback amount) may be withdrawn.

If federal government contributions exceed personal contributions, Flexible – Disability Assistance Payments are still permitted but are limited by the LDAP formula (Note: in this situation, the formula represents the maximum of all payments combined, not each type of payment).  Once the beneficiary turns 60, Lifetime Disability Assistance Payments at least equal to the formula must be made each year, meaning that there is no room for Flexible – Disability Assistance Payments.

These payments may occur before or after the beneficiary turns 60.

It’s very important to note that financial institutions are not required to offer Flexible – Disability Assistance Payments so people should check whether they are offered before opening an RDSP.

Beneficiary requested – Disability Assistance Payments

A Beneficiary from age 27 to 59, inclusive, who is not the Holder can request and receive a payment from their RDSP if the government contributions exceed all personal contributions.

We call these Beneficiary requested – Disability Assistance Payments. All financial institutions are obliged to offer these payments.

There is no limit on the number of these payments in a given year, but, the total amount of these and all other payments, combined, that can be paid in a calendar year is capped by the maximum Lifetime Disability Assistance Payment formula.

Terminal Illness – Disability Assistance Payments

If a Beneficiary is not expected to live more than 5 years, they may provide certification from a medical doctor to the financial institution and become eligible for terminal Illness – Disability Assistance Payments

The year of certification and the following five years are referred to as “specified years.”  During a specified year, any amount up to the total in the RDSP, may be withdrawn. These payments may exceed the annual LDAP limit  whether federal government or personal contributions are greater.

Financial institutions are required to offer these types of payments.

 

c)   Holdback Amount (Ten Year Rule)

The holdback amount is the total amount that the federal government has contributed to an RDSP in the preceding ten years.

If ANY payment is made from an RDSP, then the holdback amount is payable to the federal government. After 10 years, the holdback amount is zero and payments may be made without repaying any funds to the federal government.

The Beneficiary may make withdraws from their RDSP before the 10 year waiting period has passed, but they will be required to repay to the federal government an amount called the holdback amount: any Grant and Bond received within the last ten years (not including interest).

Example

Peter opened his RDSP in 2012 when he was 24.  He took advantage of the carry forward provisions and continued to make contributions until 2028. In 2029 he had $250,000 in his RDSP and he is considering starting LDAPs to supplement his Newfoundland and Labrador Income Support payments.

He has received the full Canada Disability Savings Bond ($1,000/year) and the full Canada Disability Savings Grant ($3,500/year) during each of the previous 10 years.

The holdback amount – the amount that would need to be paid back for 2029 and each of the following years is as follows:

Year Holdback Amount RDSP Total
2029 $45,000 $250,000
2030 $40,500 $262,500
2031 $36,000 $275,625
2032 $31,500 $289,406
2033 $27,000 $303,877
2034 $22,500 $319,070
2035 $18,000 $335,024
2036 $13,500 $351,775
2037 $9,000 $369,364
2038 $4,500 $387,832
2039 0 $407,224

Peter may not want to return $45,000 of $250,000 in his RDSP to the federal government, however, returning $22,500 or $319,070 to increase his annual income by $7,800/year will be very tempting.

Should the holdback amount deter you from opening an RDSP?

d)    Comparison: Government or Personal Contributions Greater

Federal Government Contributions exceed Private Contributions

Personal Contributions exceed Federal Government Contributions

LDAPs permitted  

– limited by formula until 59

– at age 60 formula determines the required LDAP

LDAPs permitted  

– not limited by formula until age 59

– at age 60 formula determines the minimum payment

Flexible DAPs permitted until 59 

– limited by formula

– at 60 not permitted because LDAP is equal to the amount determined by the formula

Flexible DAPs permitted 

– not limited by formula

– not limited by age

Beneficiary Requested DAPs 

– permitted from age 27 through 59 inclusive

– maximum of these payments combined with other payments cannot exceed amount determined by the formula

Beneficiary Requested DAPs 

– not permitted when private contributions are greater than government contributions

Terminal Illness DAPs 

– permitted whenever a physician provides a certificate that the beneficiary will not live longer than 5 years

– no limit on amount

Terminal Illness DAPs 

– permitted whenever a physician provides a certificate that the beneficiary will not live longer than 5 years

– no limit on amount

 

Is RDSP income taxable for aboriginal people?

Go to: What happens when the beneficiary dies?