At first glance, the Registered Disability Savings Plan (RDSP) repayment rules can seem daunting. If a beneficiary needs to access their funds early, they could be on the hook to return a portion of the contributions made by the federal government.
The Proportional Repayment rule and the Assistance Holdback Amount (AHA)
These terms are used often when talking about the RDSP, but they represent different things.
The Proportional Repayment Rule is the mathematical formula used to determine the amount to be paid back to the government when a withdrawal is made.
The Assistance Holdback Amount is the pot of money the government has a claim on, that is, any grants and bonds paid into the RDSP in the past 10 years. In other words, the AHA is the result of the proportional repayment rule and the amount of money that is actually at risk. If the plan is closed or the beneficiary passes away, the entire AHA must be repaid back to the government.
Understanding the Proportional Repayment Rule
For every $1 withdrawn from an RDSP, $3 of government grants and bonds received in the prior 10 years must be repaid, up to the total amount of recent government contributions, also known as the Assistance Holdback Amount (AHA). The repayment rules were implemented as a safeguard to ensure the RDSP provides for long term financial security rather than for short term needs. Repayments are made from the oldest grants and bonds first, up to the AHA limit. It is important to understand that repayments do not apply to personal contributions, any interest gained in the account, or roll overs from another registered account. Repayments only apply to money the government contributed into the plan via grants and bonds that have not been held for the required 10 year time frame.
Age 60
In the calendar year the beneficiary turns 60, a full ten years have elapsed since the last eligible government grants and bonds (the last year of eligibility is age 49), and therefore the 10 year claw back rule stops applying to withdrawals. It is in this year that Lifetime Disability Assistance Payments (LDAPs) must begin if they haven’t already started.
Are there any special cases?
if the RDSP is closed, or the beneficiary passes away, or if the RDSP beneficiary becomes non-compliant, then all grants and bonds paid in the past 10 years have to be paid back to the government
The RDSP Calculator can help you calculate any claw backs