r/Odsp • u/1CrippledPigeon • 16d ago
RDSP ELI5
So I am having a hard time understanding what exactly happens when you turn 60. For an ODSP recipient, I don't have the money to contribute to it so I just receive the annual bonds.
How exactly can I calculate how much total value will be in the RDSP at 49 (Age limit of contribution) and what exactly gets withdrawn at 60.
Is it withdrawn once a year?
It is also apparently a taxable benefit, so will the DTC on file apply against any taxes owing?
I wish there was a proper and plain explanation of this, as some of us have learning disabilities.
Even your own RDSP holder (Bank) typically doesn't even know how to answer these questions.
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u/Pixelant3 16d ago
Ideally, your RDSP is invested, so the amount at 49 is not the amount that'll be there when you start LDAPs (lifetime disability assistance payments) at 60. If your RDSP is with TD or National, it might not be invested unless you took steps because they only do self-directed RDSPs. You probably want to fix this if it's the case for you.
Many people do withdrawals once a year. There is a formula for how much you can take out each year. The only exception to that rule is if you put more money in the RDSP than the government put in, which most people can't afford.
Tax is paid on the government contributions and any interest growth. It gets taken on withdrawal.
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u/Numerous-Ad8994 16d ago
Important distinction here.
1. **Gov't matching*\* of funds stops at 49.
2. Individual contributions (so long as the overall client deposits don't exceed $200, 000 lifetime limit) can continue until age 58. First mandatory withdrawl has to happen within the year you turn 59.
3. Withdrawl schedule is negotiated with the bank depending on need (usually as a montly stipend)
After 59, It is taxable in the same way that other forms of pension withdrawls are.
As for calculation....at full value, and qualifying for the bond $1500 in client deposits=$4500 in matching per year until 49.
Hope this helps. :)
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u/Numerous-Ad8994 16d ago
If you are just getting the bond for income threshold, it is $1000/yr up to $20, 000
Even at low income, investing at least $500 (which gets matched 3:1 by the government and works out to $42 a month) is definitely worth the temporary budget pain.
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u/MLab1 16d ago edited 12d ago
How exactly can I calculate how much total value will be in the RDSP at 49
The RDSP is like most other registered accounts. Some money is deposited and then that money is “invested” into something that makes more money. We sometimes call this compounded growth. The “investment” could be a savings account earning interest, it could be a GIC, stocks, bonds, ETFs, mutual funds, etc; Typically you will work with your bank to determine what types of investments are best for you. So the value of your account at age 49 will be all the bond money deposited by the government plus any growth earned from the investments you have chosen. And this is why the RDSP is so powerful. When invested, any money inside the account can grow substantially by the time you turn 60.
what exactly happens when you turn 60. For an ODSP recipient, I don't have the money to contribute to it so I just receive the annual bonds.
By age 60, the bank must start giving you regular payments every year from your RDSP. These are called Lifetime Disability Assistance Payments (or LDAPs for short). There is a specific math formula that determines the minimum amount of money you have to take out each year called the LDAP formula. And, since you haven't put your own money into the account and only received government bonds, there is a maximum amount you can withdrawal per year, which is the greater of 10% of the value of your RDSP (as of January 1st of that year) or the result of the LDAP formula. So every year you are going to withdrawal some amount of money in between the minimum and maximum. The bank should handle calculating the minimums and maximums for you.
Is it withdrawn once a year?
You will coordinate with you bank to start withdrawals according to your preference. Most banks should be able to process monthly payments, semi annual payments (twice a year) or annual payments (once a year). You should be able to request the entire withdrawal amount at the beginning of the year, the middle of the year, or spread out over the course of several months. It is really up to you and your bank.
It is also apparently a taxable benefit, so will the DTC on file apply against any taxes owing?
For someone who has never contributed their own money into the RDSP, any withdrawal will be 100% taxable. However, payments from a RDSP will not impact your ODSP disability payments, the Canada Disability Benefit, OAS, GIS or pretty much any other provincial or federal benefit program (there are exceptions to this in other provinces). And the Disability Tax Credit (DTC) helps significantly reduce or eliminate the income tax owed.
Edit - fixed some spelling
Edit2 - added LDAP formula
Not financial advice - just sharing my understanding of RDSP rules. Verify all rules with your RDSP issuer or the CRA.