Registered disability savings plan (RDSP)
A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit (DTC).
Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59. Contributions that are withdrawn are not included as income to the beneficiary when they are paid out of an RDSP. However, the Canada disability savings grant (grant), the Canada disability savings bond (bond), investment income earned in the plan, and the proceeds from rollovers are included in the beneficiary's income for tax purposes when they are paid out of the RDSP.
RDSP limits, transfers, and rollovers
What is the contribution limit for RDSPs?
There is no annual limit on amounts that can be contributed to an RDSP of a particular beneficiary in a given year. However, the overall lifetime limit for a particular beneficiary is $200,000 (all previous contributions and rollover that have previously been made to an RDSP of a particular beneficiary will reduce this amount). Contributions are permitted until the end of the year in which the beneficiary turns 59.
Amounts directly transferred from one beneficiary's RDSP to another RDSP for the same beneficiary do not count toward the $200,000 overall contribution limit.
An amount can be transferred from one RDSP to another RDSP can be made only under the following conditions:
the transfer must be made directly from a beneficiary's current RDSP to a new RDSP for the same beneficiary;
a transfer can only be made if all holders of the current RDSP agree to the transfer;
all funds must be transferred from the current RDSP to the new RDSP;
the current RDSP must be terminated immediately following the transfer; and
where the beneficiary has attained 59 years of age before the year in which the transfer takes place, the issuer of the new plan agrees to pay any DAPs required to be made under the plan.
Rolling over retirement savings property on a tax deferred basis to an RDSP
The maximum rollover amount into an RDSP is $200,000. All contributions and rollover amounts made to any RDSP of a beneficiary will reduce this amount. A grant will not be paid into the RDSP on amounts that are rolled over.
For deaths occurring after March 3, 2010, the RDSP rules allow for a rollover of a deceased individual's registered retirement savings plan (RRSP) proceeds to an RDSP of the deceased individual's financially dependent child or grandchild with an impairment in physical or mental functions. A qualifying beneficiary is referred to as an eligible individual.
These rollover rules also apply to:
Registered Retirement Income Fund (RRIF) proceeds:
certain lump-sum amounts paid from Registered Pension Plans (RPPs), to the Specified Pension Plans (SPP); and
pooled Registered Pension Plans (PRPPs) proceeds.
RDSP rollover reporting
The retirement savings rollover transaction must be documented using Form RC4625, Rollover to a Registered Disability Savings Plan (RDSP) Under Paragraph 60(m) or the form provided by the RDSP issuer. A tax slip will be issued (for example, T4A, T4RSP, T4RIF, etc.). The amount of the retirement savings rollover is reported and deducted on the eligible individual’s income tax and benefit return. In some cases, the amount may also need to be reported and deducted in the deceased individual’s final return. For more information on how rollovers should be reported, see “Transfers to registered disability savings plans” in guide T4040, RRSP and other Registered Plans for Retirement.
These rules apply to retirement savings rollovers only. Education savings rollovers are recorded on Form RC435, Rollover from a Registered Education Savings Plan to a Registered Disability Savings Plan or another form provided by the RESP promoter. Tax slips are not issued for education savings rollovers.
RDSP issuers may produce and use their own method of documentation for education savings rollovers.
The retirement savings rollover to an RDSP:
will be considered a private contribution for the purpose of determining whether the RDSP is a PGAP, but will not be eligible for grants;
will be included in the taxable portions of RDSP withdrawals made to the beneficiary; and
may not exceed, and will reduce the RDSP contribution lifetime limit.
An eligible individual is a child or grandchild of a deceased annuitant under an RRSP or RRIF, or of a deceased member of an RPP or SPP or PRPP, who was financially dependent on the deceased for support, at the time of the deceased’s death, by reason of an impairment in physical or mental functions. The eligible individual must also be the beneficiary under the RDSP into which the eligible proceeds will be paid.