A Registered Disability Savings Plan (RDSP) becomes a PGAP at the beginning of a calendar year if the total of all federal grants and bonds paid into the plan exceeds the total of all private contributions during that same period. Conversely, the RDSP becomes a non-PGAP if personal contributions exceed government grants and bonds.
PGAP = Total personal contributions is less than the total government grants and bonds
Non-PGAP = Total personal contributions is greater than the total government grants and bonds
Note – The government of Canada assesses the PGAP vs. non-PGAP calculation once a year on January 1st. The status determined on that day binds the plan for the entire calendar year, regardless of what happens throughout the year.
Note 2 – Rollovers from a parents or grandparents Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) into an RDSP qualify as personal contributions for the PGAP or non-PGAP calculation. Likewise with a rolled over or Registered Education Savings Plan (RESP) from the beneficiary.
Note 3 – While private contributions are tax free when withdrawn from the plan, any rolled over assets from a RRSP/RRIF are fully taxable to the beneficiary upon withdrawal. See the post on understanding RDSP withdrawals for more information.
What are rules and limitations of a PGAP?
Maximum annual withdrawal limit – If the account is a PGAP, the total combined amount of Disability Assistance Payments (DAPs) and Lifetime Disability Assistance Payments (LDAPs) in the calendar year cannot exceed the greater of:
- The standard LDAP formula amount = A / (B+3−C) + D
- A is the fair market value of the plan, B is greater of 80 or beneficiary’s age at the start of the year, C is the age of the beneficiary at the start of the year, and D is of all payments paid to the plan from a locked in annuity (0 for most plans)
- 10% of the Fair Market Value (FMV) of the plan assets calculated at the beginning of that year.
Note 4 – When the beneficiary reaches age 60, they must withdraw annual payments based on the LDAP formula. If the plan is a PGAP, the yearly withdrawals must stay between the formula’s minimum and a 10% maximum.
Example – Consider an RDSP account with $50,000 in assets. The beneficiary is 60 years old.
The LDAP formula = $50,000 / (83 – 60) = $2,173.91.
Because the plan is a PGAP, the yearly withdrawal must be between the LDAP formula minimum ($2,173.91) and 10% of the value of the RDSP at the beginning of the year ($50,000 X 10% = $5,000) which is the maximum. For this calendar year, the total amount withdrawn from the RDSP must be between $2,173.91 and $5,000.00.
Beneficiaries have the right to request payments between the ages of 27 and 58 – Normally, only the plan holder has the authority to request withdrawals from an RDSP. However, if the account has PGAP status, this special rule becomes active when the beneficiary is between the ages of 27 and 58. The adult beneficiary can legally bypass the plan holder and request a lump sum withdrawal (DAP) without the holder’s consent. The catch is that the withdrawal must respect standard PGAP limits. The payout cannot exceed the greater of 10% of the plan’s total value or the LDAP formula, and the regular clawback will be triggered if any grants or bonds were deposited in the previous 10 years. Furthermore, the beneficiary can only bypass the holder and withdraw money from the plan if, after the withdrawal is paid, the FMV of the remaining assets in the RDSP is not less than the Assistance Holdback Amount (AHA).
Example – If a beneficiary has $50,000 in their RDSP, and their 10 year AHA is $40,000, they cannot request a $15,000 withdrawal, even if this amount is within LDAP or 10% limit, because the withdraw would result in the plan having $35,000 remaining, which is below the AHA threshold of $40,000.
Non-PGAP accounts
If the RDSP is a non-PGAP then,
- the beneficiary has no right to request withdrawals regardless of age without the holder’s consent, unless they are themselves the holder. The age 27 to 58 rule does not apply to Non-PGAP accounts.
- at age 60, the LDAP formula is the mandatory minimum for withdrawals that must be withdrawn every year.
- there is no maximum annual withdrawal limit regardless of age or withdrawal type (LDAP or DAP).
Check out the Disability Assistance Payments (DAP) Calculator
Check out the Lifetime Disability Assistance Payments (LDAP) Calculator
The Specified Disability Savings Plans (SDSP)
If a beneficiary is diagnosed with a terminal or significantly shortened life expectancy (5 years or less), the plan holder can formally designate the account as an SDSP. Upon certification by a medical professional, the 10% withdrawal restriction for a PGAP plan is lifted, allowing the beneficiary to access to money from the RDSP when it is needed most. Always consult a professional before making decisions.
Check out the Specified Disability Savings Plan (SDSP) Calculator