We can look at the Registered Disability Savings Plan (RDSP) as a game. The key goal? To get the maximum government contributions possible.
Like any good game, there are rules. If we want to maximize government contributions through grants and bonds, we need to understand and use those rules to their limits. If we start early and take advantage of the Registered Disability Savings Plan (RDSP) rules, an eligible person can get up to $90,000 from the government.
Rule #1 – The Time Limit
The earlier someone opens an RDSP, the more time they have to receive their maximum government contributions.
An individual is only allowed to contribute to the RDSP up to, and including, the year in which the beneficiary turns 59. However, significant government financial incentives are only available until you turn 49.
For example, someone who has an RDSP at age 30 has 20 calendar years to contribute to reach their maximum amount of grants and bonds. However, someone who has an RDSP at age 40 has only 10 calendar years to use their maximum number of grants and bonds. Both can continue to contribute past the year they turn 49, but the government won’t provide any additional incentive.
Rule #2 – Government Contributions
Once again, maximizing government contributions is the goal of the game.
There are two types of government contributions available: Savings Bonds and Savings Grants. Everyone who has an RDSP is eligible for grants. If you have a lower income, you can get an additional “bonus” in the form of bonds.
Your RDSP provider will automatically apply for government contributions (both bonds and grants!) on your behalf if you have authorized them to do so in your application package.
Rule #3 – Bonds
Being eligible for bonds gives you the most “bang for your buck”, as you don’t need to contribute money to get them.
If you meet the eligibility criteria and have filed your income taxes, you can get up to $20,000 in bonds over the lifetime of your RDSP.
Income thresholds change each year. To be eligible for the RDSP in 2025, the combined income of you and your spouse (if you have one) must be $57,375 or less.
If your combined income is $37,487 or less, you will receive $1,000 each year that you file your income taxes. This $1,000 is the full bond.
If your combined income is between $37,487 and $57,375, then you will receive a bond that is decreased in proportion to your income. For example, if your income is exactly halfway between the lower and upper limits ($47,431). Then, you would get exactly half the bond for that year ($500).
The good news is that you will automatically receive the bond each year you are eligible if you file your taxes. Before the year you turn 49, you can receive a total of $20,000 in bonds paid to your RDSP. Once you reach either the $20,000 lifetime limit, the end of the calendar year, or age 49, the government will stop contributing bonds, whichever comes first. This is another reason to open an RDSP as early as possible, so you have the greatest opportunities to receive the bonds.
Rule #4 – Grants
The most significant opportunity in the RDSP game is the grants, which can get you up to $70,000 until you turn 49.
Assuming your combined household income is $114,750 or less, you will receive $1,500 in grants for the first $500 you put in your RDSP each year ($3 for every $1 you contribute). You will receive an additional $2,000 in grants for the next $1,000 you contribute ($2 for every $1). This works out to a maximum of $3,500 in government grants per year for a $1,500 contribution.
Strategy
Now that we know the rules of the game, how do we “win” it?
The ideal strategy would be to add $1,500 to your RDSP every year for 20 years before you turn 50. That would get you $70,000 in grants. To accomplish this, you would need to open your RDSP by age 30 to have enough time to make those annual $1,500 contributions. If you open your RDSP earlier than age 30, you will still be able to hit your $70,000 in grants without having to contribute the full $1,500 each year.
In addition to giving yourself the most time to maximize your grants and bonds, opening your RDSP early gives you the benefit of compounding returns:
2025: Your $500 is now $2,000 because you received $1,500 in grants.
2026: Your $2,000 is now $2,100, reflecting a 5% annualized return (a gain of $100).
2027: Your $2,100 is now $2,205 (a gain of $105). As a result of compounding returns, your gains increase each year.
2035: If we repeat this pattern, your original $2,000 is now $3,257 (a gain of $1,257 from your original investment, $2,757 if you include the government grant).
If you made the same $500 contribution in 2035, you would have lost out on all the potential gains that you may have had along the way.
You can contribute beyond the $1,500 that earns you the grants each year. The government won’t match the money, but you can still benefit from compounding returns! You can also “catch up” on missed grants in certain cases. You should be careful not to exceed the contribution limit ($200,000) before you’ve received all the grants and bonds you’re eligible for!
Special Rules for High-Income Beneficiaries
There is a special rule for people with an individual or combined income of more than $114,750. In this case, you can receive only $1 in Savings Grant money for every $1 you contribute to your RDSP, up to a maximum of $1,000 in grants per year. As well, there will be no bonds for you in any year you earn over the $57,375 bond limit. This makes it much more challenging to hit the $70,000 in lifetime grants (impossible if that’s your income for all the years that you are eligible). Is it still worth having an RDSP in that case? Absolutely! $1,000 a year is not an inconsequential amount of money.
One more thing: If you are a high-income beneficiary, you may have the means to put a large lump sum in your RDSP. Be careful! A maximum of $10,500 in grants can be paid out each year, even accounting for contribution limits from previous years that were missed. If you’re planning to put down a lump sum, talk with your licensed financial advisor to confirm that you aren’t burning the possibility of future grants. If nothing else, keep in mind that the maximum amount that you are allowed to contribute to the RDSP in your lifetime is $200,000. Make sure to leave yourself enough of a runway to keep earning grants.
The RDSP is a big benefit for all people with disabilities in Canada, but a huge benefit for those who are in a lower-income bracket.
Up to $70,000 in grants and up to $20,000 in bonds can give a beneficiary a total of $90,000 in government contributions. Not even considering any return on investment, that money could be life-changing for many people. The earlier you can open your RDSP and start saving, the greater the economic benefit you will realize.
Author:
Harley Nadler
Licensed Financial Advisor