Understanding the timing and flexibility of RDSP payments is crucial, especially when compared to the more familiar RRSP or RRIF rules. While both are designed for long term financial security, the rules regarding withdrawing from an RDSP are different.
LDAPs must begin by age 60
By December 31st of the year the beneficiary turns age 60, Lifetime Disability Assistance Payments (LDAPs) must begin. Contrast this with an RRSP which must be converted into a RRIF by age 71 and begin withdrawals by age 72. The RDSP was designed to ensure the beneficiary benefits from the funds during their senior years.
Can payments from an RDSP begin before age 60?
Yes, regular LDAPs can begin at any age. However, the caveat is the dreaded 10-year proportional repayment rule, meaning $3 in government grants and bonds must be paid back for every $1 withdrawn. By penalizing early withdrawals, the rules incentivize beneficiaries to keep investments growing as long as possible, reinforcing the RDSP’s intent as a long-term retirement vehicle.
Once payments start, can they be stopped or paused?
Once LDAP payments begin, they cannot be stopped or paused. Payments are made until account funds are exhausted or the beneficiary passes away. Once the tap is turned on, it stays on, and cannot be turned off.
What about lump-sum payments (DAPs)?
Lump sum or one time payments, also known as Disability Assistance Payments (DAP), can be requested any time by the RDSP plan holder. The caveat is that similar to LDAPs, DAPs triggered before the 10 year waiting period are subject to the $3 for $1 repayment rule.
Secondly, if the government grants and bonds deposited into the account exceed personal contributions, the account is known as a Primarily Government-Assisted Plan (PGAP), and there are strict annual limits on how much can be withdrawn. If personal contributions exceed government grants and bonds, then the account is classified as a non-PGAP account and there is no annual limit to how much can be withdrawn. Regardless of whether the plan is a PGAP or a non-PGAP, the 10-year repayment rule remains in effect.
Check out the DAP calculator to see how much can be withdrawn
What about beneficiaries with shortened life expectancy?
If a medical doctor certifies in writing that a beneficiary’s life expectancy is five years or less, the plan can be designated as a Specified Disability Savings Plan (SDSP). This designation allows annual withdrawals of up to $10,000 (or the amount calculated by the LDAP formula, whichever is greater) that is exempt from the 10 year repayment rule, which allows the beneficiary to access funds without repaying grants and bonds to the government.
Check out the SDSP calculator to see how much can be accessed from the RDSP account