An interesting forum post from a user in their 50s asked which type of registered account they should invest in. Would it be better to open a Registered Retirement Savings Plan (RRSP) or a Registered Disability Savings Plan (RDSP)? The person qualified for the Disability Tax Credit (DTC) and was currently out of the workforce. No other details were provided.
Without more information in regards to finances or income sources, other were left to speculate. Given the circumstances, it might make sense to move away from income tax reduction and towards long-term asset protection to ensure retirement savings doesn’t disqualify them from government benefits.
They are different but the same?
For many Canadians, RRSPs are a cornerstone of their retirement strategy. They offer deductions for contributions and tax-deferred growth, making them an essential tool in retirement planning. However, without an income, tax deductions lose their value because there is no income to tax, so they wouldn’t actually provide any savings.
Similarly, the tax-deferred RDSP is designed to help individuals with disabilities save for their long-term financial security, offering free grants and bonds from the government. But being older than 49 years of age means not being eligible for grants and bonds. Further, unlike the RRSP, the RDSP does not have tax deductions on contributions.
Shielding assets to qualify for provincial disability benefits
Provincial disability programs such as Ontario Disability Support Program (ODSP) have strict asset restrictions, and the RRSP is not considered an exempt asset. It would make perfect sense for the forum poster to prefer an RDSP account as it is considered an exempt asset in most provinces and territories, or specify that it is fully exempt under ODSP in Ontario.
Protection from clawbacks
One of the more generous features of the RDSP is that any withdrawals (LDAP or DAP) do not count as income with respect to provincial benefits such as ODSP, or federal programs such as Old Age Security (OAS), Guaranteed Income Supplement (GIS), Canada Disability Benefit (CDB), GST/HST Credit & Canada Child Benefit (CCB). By contrast, payments from a Registered Retirement Income Fund (RRIF) do count as income for calculating provincial and federal benefits and jeopardize those financial supports of being clawed back if income surpasses certain thresholds.
Possible avoidance of withholding taxes
RDSP issuers do not withhold income tax at source until the taxable portion of annual payments exceeds a certain threshold, that is, the Basic Personal Amount (BPA) plus the Disability Amount (DA), provided the beneficiary qualifies for the DTC. In 2026, a beneficiary could receive roughly $26,793 in taxable RDSP payment before the bank would begin to withhold money. Conversely, any RRIF withdrawals that exceed the annual minimum amount as per the RRIF formula are subject to immediate withholding which can create liquidity issues for someone with low income.
Federal withholding taxes on RRIF withdrawals
| Withdrawal amount above the annual minimum | % Federal tax withheld | |
| Provinces/territories except QC | QC | |
| $0 to $5,000 | 10% | 5% |
| $5,001 to $15,000 | 20% | 10% |
| Greater than $15,000 | 30% | 15% |
Fun with math – RDSP vs. RRIF
As an example, consider a 65 year old beneficiary with $360,000 in savings at the beginning of 2026. They need to withdraw exactly $20,000 from their retirement account to pay for home accessibility upgrades.
Case A – The RDSP
The LDAP formula would determine that the minimum annual withdrawal is:
360,000 / (80+3−65) = $20,000
This amount would not be subject to withholding taxes because it is below the 2026 combined federal non-refundable tax credits (BPA + DA) of $26,793, and the full withdrawal amount would be available immediately to pay for home renovations.
Gross withdrawal: $20,000
Withholding Tax: $0
Net cash in hand: $20,000 (The full amount is available immediately)
Case B – The RRIF
According to federal guidelines, a minimum of 4% of the RRIF should be withdrawn at age 65.
360,000 × 4% = $14,400
Which would fall short of the $20,000 required funding to pay for home repairs. To get that extra $5,600 in cash, the senior must request an excess withdrawal. By law, financial institutions must withhold tax on any amount taken above the RRIF minimum, and because the extra $5,600 falls into the $5,001–$15,000 tax bracket, it triggers a 20% withholding tax at source. So to net $5,600, a gross amount of $7,000 must be withdrawn from the RRIF.
Gross withdrawal (No withholding tax): $14,400
Additional Cash Needed: $5,600
Withholding taxes on excess: To receive a net amount of $5,600 after a 20% withholding tax at source, the financial institution must process a gross excess withdrawal of $7,000
Gross withdrawal: $21,400 ($14,400 minimum + $7,000 excess)
Withholding tax: $1,400 (20% of the $7,000 excess)
Net cash in hand: $20,000
In this scenario, the RDSP is clearly superior for liquidity as it provides a higher tax free threshold due to the Disability Tax Credit. The RRIF holder was forced to withdrawal an extra $1,400 to make up for withholding taxes. While it is true the RRIF account holder may receive a tax refund in the following year, that would not help pay for necessary renovations to the house today.