Registered Disability Savings Plan (RDSP) FAQ Thread
WHAT IS AN RDSP?
A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit (DTC).
You can watch these really quick CRA RDSP information videos to get a simple summary of the rules and benefits. It includes the following 3 Modules:
Module 1: Start Saving for the Future
Module 2: Grants and Bonds to Make Your Savings Grow
Module 3: Taking Money Out
GRANTS & BONDS
The amount of the grant is based on the beneficiary’s adjusted family net income as follows: The beneficiary adjusted family net income thresholds are indexed each year to inflation. The income thresholds shown are for 2020.
Amount of CDSG grant when family income is at or below the top matching threshold (2021 = $98,040):
- on the first $500 contribution—$3 grant for every 1 dollar contributed, up to $1,500 a year
- on the next $1,000 contribution—$2 grant for every 1 dollar contributed, up to $2,000 a year
- on the first $1,000 contribution—$1 grant for every 1 dollar contributed, up to $1,000 a year
For people living on an income between $32,028 – $49,020 they can still receive a partial bond.
Bonds are based on your net income (line 236) from 2 years prior. So, the bond you get in 2021 will be based on your 2019 net income. If your income increased in 2020, you won't see the impact on the bond until 2022.
It is easier to understand everything if you try out the RDSP GRANTS & BONDS CALCULATOR. I have made an example to explain the calculator in post #14)
HOW DO CARRY FORWARDS WORK?
The government matching rules can seem very complicated. But the benefits outweigh any stress caused with understand them.
Here is an example I adjusted for a low income DTC holder who just opened their RDSP account in 2021. In this scenario, to maximize the matching carry-forward grants/bonds, the following contributions need to be made over 5 years:
- $3,500 in 2021
- $4,000 in 2022
- $5,000 in 2023
- $5,000 in 2024
- $4,000 in 2025
- Total private contributions $21,500
- Total CDSGs $50,500
- Total CDSBs $15,000
- Total value in RDSP* $87,000
WHAT IF MY INCOME VARIES EACH YEAR?
For those with varied net incomes that are above and below thresholds, an awesome reddit user, geraminalun made this RDSP GRANTS & BONDS CALCULATOR that lets you calculate how much you will receive in grants and bonds depending on your income and contributes made. It even calculates the carry-forward amounts too!
HOW DO I USE THE RDSP GRANTS & BONDS CALCULATOR?
The calculator is a Google Sheets template which you can copy/download. Note that this link is for view only (it is my template), so you will not be able to modify it directly. But you should be able to either download an equivalent or make a copy to your own Google Docs account.
You need to fill in the white section properly, including all the years eligible, since eligibility is a big deal in RDSP stuff. If beneficiary was below 18 and eligible, the parents revenue is part of the bond/grant calculations as well so that may be needed.
- 1 - set your birth year top left, row 4
- 2 - set NO in column D ("Eligible") for each year from birth until the year of column A for which your son (beneficiary) became eligible for the DTC
- 3 - set YES in column D for the year your son became eligible and subsequent
- 4 - input the beneficiary's or parent's net income from your Notice Of Assessment
- 5 - enter the $ amount you will/have contributed to the RDSP
- primary goal is to reach 70k in column AM (the total bond limit per year),
- secondary goal that the sheet does include is to become NON-PGAP in column AS. NON-PGAP is the net calculation of (Contributions - (Bonds + Grants)). Note that this can be done by adding late contributions in column G, including rollovers from RESP and RRSPs up to certain amounts.
AM I ABLE TO ROLLOVER/TRANSFER MY INVESMENTS INTO AN RDSP?
In some situations, yes. All the information regarding transfers & rollovers is available on the CRA RDSP website.
HOW DO I QUALIFY FOR AN RDSP?
You need a Social Insurance Number, file your income taxes, are under the age of 60, and most importantly, you are eligible for the Disability Tax Credit (DTC)
HOW DO I GET THE DTC?
Getting the DTC can be the hardest part and can be a bit overwhelming.
Thankfully the rdsp.com website has lots of information and links to other resources. They even have links to a Step-By-Step Guide to becoming eligible, opening and managing your RDSP
If this still seems overwhelming, don't worry. It is a lot to process. When I was helping my brother with all this, I wanted to give up a few times. Just try to take it slow, step-by-step. Don't try to jump in head first. What really helped my brother was meeting with the Disability Alliance of BC. They are a non-profit that help and advocate for British Columbians with disabilities. They interviewed my brother and completed all the forms for him. It took a lot off his shoulders. I suggest you find out which disability advocacy organizations are in the area. I will update this post with links for other provinces when I find them.
FYI you MUST open an RDSP in person. There is no way around this. Call ahead and make sure to meet with someone who knows how to open an RDSP. Few bank reps actually have experience with opening RDSP accounts.
WHICH BANKS/BROKERAGES OFFER RDSPs?
All the big banks offer RDSPs (click on link above) but for people interested in self-directed accounts, there are only two options:
TD DI is the most popular choice:
- It has the most intuitive platform that is easy to learn.
- TD DI trading fees are higher - $9.99/trade but $0 mutual funds
- they don't charge any admin fees
- everyone in the household gets the minimum balance admin fees waived also
- offer a free basic account for RDSP holders
National Bank is less popular
- can be more/less expensive depending on account balance and frequency of trades.
- It doesn't waive the admin fees which are $100/year if your balance is below $20k
- I would not suggest this option for beginners who are unfamiliar with investing
Regardless of which type of RDSP account you open, there is one enormous caveat you need to be aware of - in order to get the matching grants/bonds, your deposits MUST be identified and registered by your financial institution. So the rule of thumb is make sure you speak with whoever handles your RDSP first!
DON'T TRANSFER ANY FUNDS TO YOUR RDSP BY YOURSELF!
My brother has an RDSP at TD DI. The system is pretty old school and you need to make sure your deposits are registered in order to get the grants and bonds. You will need to call TD DI and have them deposit the funds. It takes about 2 business days from the money to be transferred. You can get the money to TD DI in several ways. You can bill pay into a TD DI CASH ACCOUNT and call them to transfer it into your RDSP. You can deposit money into your TD checking/savings account and have TD DI move it into your RDSP. If you have a good relationship with your TD advisor/rep, you can email them and ask them to setup the transfer so you don't have to call in. But most have no idea what to do so YMMV. I know you can go into a branch and deposit money/cheque but that is a very long and pretty unnecessary process.
My brother just deposits one lump sum at the start of each year to make the process as simple as possible. It's always busy at the start of the year so you will have a long wait time on the phone unless you get lucky. It's a little bit of pain for a lot of gain.
WHAT SHOULD I INVEST IN?
Well that depends on the level of risk you can tolerate. You can use one of the risk tolerance calculators online and from there decide what kind of investments you want. For very conservative RDSPs you could purchase GICs, government bonds, or just deposit into an eligible RDSP savings account.
If you want your investments to grow bigger and faster, you could invest in mutual funds and/or ETFS, stocks, equities. However, TD e-series mutual funds have lower MERs than any other I have seen for broad, full market coverage index investing.
Mutual funds tend to have much higher Management Expense Ratio (MER) vs ETF , stocks, equities
If you just want a really simple solution you can buy an all-in-one asset allocation index ETF that rebalances itself. You just buy it and forget it until the next year. You can check out www.canadiancouchpotato.com for their Model Portfolios. The site suggests Vanguard, iShares, and TD e-series mutual funds.
When I was first learning about investing, I was overwhelmed and just started with XBAL (60% equities / 40% bonds). It was a super simple way to get my money invested while I learn more about what I want in my portfolio. As the saying goes "time in the market beats timing the market" If you want to learn more about ETF investing, I suggest watching (Portfolio Manager, MBA, CPA, CFP) Ben Felix's YouTube series "Common Sense Investing" because he backs up all his statements with peer reviewed studies. He cites everything and his advice is all based on statistics. So if you've spent way too much time in academia and just can't take anyone seriously unless they cite their sources, then the Common Sense Investing is for you! Here's his video about Asset Allocation ETFs He is also a moderator of r/PersonalFinanceCanada if you want to check him out
That's all for now. I will update when I have time. I recommend that you read through this recent thread and also take a look through reddit. The Personal Finance Canada subreddit has lots of great info but it is all scattered around. I highly you search r/PersonalFinanceCanada and also use redditsearch.io to refine your searches.