The Registered Disability Savings Plan (RDSP) is a long-term savings plan designed to help those with disabilities save for the future.
The plan was created in 2008 and while it’s considered generous and one of the first of its kind in the world, some families say it could be improved.
Sebastian Correa is 14 years old and lives with his family in Toronto. He was born with a heart defect and had a heart transplant as a baby. His mother, Sandra Martinez, said while he’s a happy boy, he faces many medical challenges.
“Transplanted heart, the fact that he has to eat by a tube, the fact that he does not speak, the fact that he has autism,” explained Martinez.
An RDSP allows families to help someone with a disability save for the future and the government matches contributions with grants and bonds.
The plan is designed for long term savings, although funds can be withdrawn early if you pay a penalty on the government contributions or you can withdraw money without paying a penalty if the last time you received a grant or bond was more than 10 years ago.
To help her son financially, Martinez told CTV News it was suggested her family open an RDSP for Sebastian when he was young, so he would have money when he was older.
They said that they were told by their bank they could make withdrawals from the plan after 30 years but recently found out they’d have to wait much longer or risk losing a portion of the grants and bonds provided by the government as part of the program.
The family has about $100,000 in the RDSP. The rules stipulate that people must wait 10 years from the date of the government’s last contribution to withdraw without penalty, and in most cases the plan is designed to help those with disabilities once they reach 60 years of age.
“For us, that’s almost impossible,” Martinez said. “We do not know what his life expectancy will be. Unfortunately, I don’t think he will make it to 60 years old.”
Martinez is also concerned that by waiting until her son is 60 years old she and her husband may not be there to help with the withdrawal of funds.
The penalty for early withdrawals is substantial and Martinez said trying to get information on the plan from her bank and the Canada Revenue Agency has been frustrating.
“If we were told at the beginning when we sat down with an advisor at the bank, we would have never had done it,” Martinez said.
Lawyer Brendon Pooran’s firm specializes in cases involving persons with disabilities. Pooran told CTV News that while the goal of the RDSP is to promote long term savings, he believes changes to the plan could benefit many families.
“It’s complex and relatively new,” said Pooran. “I think there are some creative solutions that governments could potentially consider when it comes to allowing people access to funds.”
Families are able to access the funds in an RDSP without penalty only if they stop receiving grants and bonds from the government for a period of 10 years, commonly referred to as the 10-year rule.
“What the 10-year rule means is that a beneficiary of the plan has to wait 10 years until the government has stopped making its own federal contributions in order to pull money out without having to pay a penalty (on the government contributions),” Pooran said.
According to the government of Canada’s website, regular withdrawals from an RDSP must begin by Dec. 31 of the year you turn 60.
“In some cases, you may want to withdraw savings sooner. In this case, you may need to pay back some grant and bond amounts when you make a withdrawal. You do not need to repay grants and bonds when you make a withdrawal if you turned 60 by Dec. 31 of the year the beneficiary turns 60, withdrawals from the plan must begin,” the site states. “None of the grants and bonds paid into the plan are subject to repayment in the event of plan closure, the beneficiary’s death, or a withdrawal. Repayment is also not necessary if the last time you received a grant or bond in your account was more than 10 years ago. in most cases, you should be able to withdraw money without having to repay.”
The government says that it “offers flexibility to people with a life expectancy of five years or less when making withdrawals from their plan” provided that you provide “medical attestation to your financial organization to begin the withdrawal process.”
“Beneficiaries with a life expectancy of five years or less can withdraw up to $10,000 per year subject to certain conditions. This amount includes grants, bonds, contributions, and interest earned on investments. When a beneficiary dies, grant and bond amounts deposited into their plan within the last 10 years before their death must be repaid,” the site states. “You will need to repay grants and bonds when you make a withdrawal if you have received grants and bonds in the last 10 years. You will need to pay back all or a portion of the grant and bond amount received in the last 10 years. The amount you have to pay back depends on how much you withdraw from your account.”
The amount you need to pay back is $3 of grant and/or bond for every $1 withdrawn, up to the total amount of grant and bond paid in the last 10 years, according to the government.
You do not need to pay any penalties on the money you contribute to a RDSP, it should be noted.
Martinez says she feels she will stop all grants and bonds being contributed to the plan which means her son should be able to see funds from the RDSP in 10 years, when he is 24 years old, but she still feels changes are needed to better explain the plan and allow families access to funds sooner if they need them.
“I would like them to have a look and revise the RDSP, because I’m sure there are more families like ours in this same situation,” she Martinez.
You can find more information on the RDSP online. It’s advised that before signing up with the plan, to ensure an understanding of the rules and know the penalties involved before withdrawing funds.
Clarification
This story has been updated to provide additional clarification around the terms of the RDSP program.
