The Registered Disability Savings Plan (RDSP) offers some generous government contributions, depending on household income. If the beneficiary’s household income is under a certain threshold, grants of up to $3,500 a year are available with a contribution of $1,500.
The beneficiary may also be entitled to the bond amount of $1,000 a year (again, depending on income), so all told, they could receive $4,500 a year with a contribution of $1,500. That’s $3 in government contributions for every $1 contributed, or a 300% rate of return.
When an RDSP beneficiary is under the age of majority, it’s their parents’ or guardians’ household income that is used to determine grant and bond eligibility. If that income is over a certain threshold ($117,045 in 2024 income for 2026), contributions of up to $1,000 are matched at a $1 to $1 rate. The beneficiary would not qualify for the bond at this income level.
As an aside, the income threshold in 2026 is the household income for 2024. Income taxes from two years prior will always be used to determine grant and bond eligibility. This is because the government cannot determine this year’s income yet, and since RDSP contributions can be made at any point in the year, taxes might not have been filed for last year’s income. This is why it’s important to file taxes for your child (even if they haven’t earned anything) for the two years prior to them turning the age of majority, when eligibility will be based on their income.
We’re often asked by parents or guardians with income above the threshold if it’s better to wait until the beneficiary is the age of majority, when it will be the beneficiary’s (presumably) lower income that will be used to determine grant & bond eligibility.
In short, start now. You will always be better off, even though you’re getting less in contributions at the start (and by a significant amount). Why? It comes down to a fundamental principle of finance: a dollar today is worth more than a dollar tomorrow. I will restate that – it’s not a fundamental principle of finance, it is the fundamental principle of finance.
A dollar today can be invested. It can be spent. A dollar tomorrow will be invested for a shorter time frame, earning less return. Its value can be eroded by inflation. (Admittedly, these effects aren’t likely to be noticed in a day, but over longer time periods the principle always prevails.)
Enough theory. Let’s see how this plays out in practice, looking at two examples:
- Starting when the beneficiary is 3 years old, and their parents are above the income threshold and receive $1,000 for every $1,000 up until the beneficiary turns 18 (and then gets $3,500 for every $1,500 contribution, plus the $1,000 a year bond),
- Waiting until the beneficiary turns 18, and gets the full $3,500 on a $1,500 contribution, plus the bond of $1,000.
In both cases, they will be able to get the lifetime maximum of $70,000 in grants, and $20,000 in bonds. However, getting the $1,000 a year in grants starting from the age of 3 makes a big difference.
Both scenarios assume a 7% rate of return for a global index equity fund.
Let’s start with scenario 2, waiting until the beneficiary is 18 to open and contribute to the RDSP.
Assuming their income is under the threshold for the grant and bond, they will have received all government contributions in 20 years at the age of 37. (In Scenario 1, all of their grants are received by the age of 32, but their bonds don’t start until they reached the age of majority, and their income was used to determine eligibility.)
By the age of 47, when a withdrawal can be made without penalty, scenario 2’s RDSP will be worth $479,579. Waiting until age 60, when withdrawals have to start, it will be worth $1,155,711. Not too bad!
Scenario 1, though, shows clearly, that starting early is the preferable choice.
By age 47, their RDSP will be worth $850,294, and at age 60, $2,049,076. That’s a 77.3% difference between the value of their RDSPs, which would clearly make a huge difference to the beneficiary’s life and comfort.
While scenario 1 did make more contributions than scenario 2, and that factors a bit into the higher value of their RDSP, the biggest factor in accounting for the difference is still the time value of money.
A dollar today is always worth more than a dollar tomorrow.
Access free 1:1 support in opening your child’s RDSP through our national Disability Planning Helpline.
Find resources and learn more about the Registered Disability Savings Plan at RDSP.com.
Contributor:
Keith Richards
Disability Planning Helpline Advisor
Please note, all views and opinions expressed by contributors should be recognized as theirs alone, and do not necessarily reflect the official policies or position of Plan Institute
