How an RDSP Works: Grants, Bonds, and Withdrawals

A Registered Disability Savings Plan (RDSP) is a tax-sheltered Canadian account built around a simple trade: you contribute toward a $200,000 lifetime limit for a beneficiary approved for the Disability Tax Credit, the federal government adds matching grants of up to $3,500 a year and bonds of up to $1,000 a year, investments grow tax-free inside the plan, and withdrawals follow rules designed to keep the money there for the long term.¹² The grants and bonds are the engine; the withdrawal rules are the catch most people miss.

Who the Plan Is For

Three conditions open the door. The beneficiary needs a valid Social Insurance Number, must be a resident of Canada when the plan is opened and whenever contributions are made, and must be approved for the Disability Tax Credit (DTC).³ The DTC itself requires a medical practitioner to certify on Form T2201 that the person has a severe and prolonged impairment, with “prolonged” generally meaning lasting or expected to last at least 12 months.⁴

A plan can be opened any time before the end of the year the beneficiary turns 59, but grants and bonds only flow until December 31 of the year the beneficiary turns 49. Opening early matters because that gap is where most of the government money lives.²

The person who opens and runs the account is the plan holder. For a minor, that is a legal parent or court-appointed representative. An adult beneficiary who can enter contracts opens the plan themselves. Where capacity is in doubt and no legal representative has been appointed, a qualifying family member — currently a parent, spouse, or common-law partner — can act as holder; that measure has been extended through December 31, 2026, with a federal proposal to add siblings.⁵

Contributions and the Lifetime Limit

There is no annual cap on contributions. The only ceiling is the $200,000 lifetime limit per beneficiary, which includes personal contributions and any rollovers from other registered plans. Contributions can continue until the end of the year the beneficiary turns 59.¹

Inside the plan, the money can be held in most of the same qualified investments permitted for RRSPs and TFSAs: GICs and term deposits, mutual funds, ETFs, publicly listed stocks, investment-grade bonds, and segregated funds. Cryptocurrencies and real estate are excluded, and individual issuers may offer a narrower menu than the law allows. Holding a non-qualified investment triggers a 50% tax on its fair market value plus tax on any income it produces.⁶

Government Grants and Bonds

Two federal programs put money into the plan: the Canada Disability Savings Grant, which matches your contributions, and the Canada Disability Savings Bond, which requires no contribution at all. Both are calculated automatically from the family income reported two tax years earlier, so filing a return on time is essential even when no tax is owed.

How the Grant Is Matched

For the 2026 calendar year, based on 2024 family income:²

Family income of $117,045 or less: the government deposits $3 for every $1 you contribute on the first $500, then $2 for every $1 on the next $1,000. A $1,500 contribution captures the full $3,500 annual maximum.
Family income above $117,045: $1 for every $1 you contribute on the first $1,000, for a maximum grant of $1,000 per year.

The grant has a lifetime cap of $70,000 per beneficiary.

How the Bond Works

The bond is paid without any personal contribution. For 2026, a family income of $38,237 or less brings in the full $1,000; between $38,237 and $58,523, a partial bond is deposited.² The lifetime bond limit is $20,000.

Carrying Forward Unused Room

If the plan didn’t exist in earlier years, or didn’t receive the full amount, unused grant and bond entitlements carry forward up to 10 years. When catching up, a single year can draw as much as $10,500 in grants and $11,000 in bonds. Carry-forward entitlements can be claimed until the end of the year the beneficiary turns 49.⁷ That is a strong reason to open the plan early, even in a year you can’t afford to contribute. The room is building regardless.

How Withdrawals Work

Any payment out of the plan is a Disability Assistance Payment (DAP). A Lifetime Disability Assistance Payment (LDAP) is a recurring version that must begin no later than December 31 of the year the beneficiary turns 60.⁸ The maximum annual LDAP is set by formula: the fair market value of the plan at the start of the year divided by (83 minus the beneficiary’s age at the start of the year). After age 80 the divisor is fixed at 3, which pushes payouts higher.⁹ Your financial institution runs the actual numbers.

The 10-Year Clawback

This is where RDSPs trip people up. The assistance holdback amount (AHA) is the total of all grants and bonds deposited into the plan in the last 10 years, minus any already repaid.¹⁰ For every $1 withdrawn, $3 of grants and bonds must be repaid to the government, up to the AHA. No withdrawal is permitted if it would drop the plan below the AHA.⁷

Each grant or bond deposit starts its own 10-year clock. Only once a decade has passed does that particular deposit drop out of the AHA. Steady annual contributions attract new grants and bonds, which is good for long-term growth but keeps the AHA high and withdrawals costly. If you expect to need the money within ten years, that math is worth working through carefully before contributing more.

Shortened Life Expectancy: the SDSP Option

When a medical doctor or nurse practitioner certifies in writing that the beneficiary is unlikely to survive more than five years, the holder can elect to convert the account into a Specified Disability Savings Plan (SDSP).¹¹ Under an SDSP, the $3-for-$1 clawback does not apply, provided the taxable portion of withdrawals in a year stays at or below $10,000. In exchange, no further contributions can be made and no further grants or bonds will be paid. Exceeding the $10,000 taxable threshold in a year ends the SDSP status, and the holder must wait 24 months before making a new election.

How Withdrawals Are Taxed

Every payment is split into a taxable and non-taxable portion.¹² Your own personal contributions come back tax-free. The taxable portion covers grants, bonds, all investment income earned inside the plan, and any rollover amounts from RRSPs, RRIFs, and similar plans. That taxable amount goes into the beneficiary’s income for the year it is received.

Taxable RDSP income is excluded when the federal government calculates eligibility for the GST/HST credit, the Canada Child Benefit, and the Canada Workers Benefit, so withdrawals don’t erode those payments.¹² Most provinces and territories also fully exempt RDSP assets and withdrawals from provincial disability benefit calculations. Quebec, New Brunswick, and Prince Edward Island apply partial exemptions with monthly caps, so provincial rules deserve a look before planning any large withdrawal.

What Happens If DTC Approval Is Lost

Losing DTC approval no longer forces the plan to close. Since 2021, the holder can elect to keep it open, with restrictions: no new contributions and no new grants or bonds, but existing grants and bonds already in the plan are not clawed back just because of the DTC loss.¹³ Withdrawals remain available, but the proportional repayment rule still applies to any grants or bonds deposited in the 10 years before approval was lost. If the beneficiary later regains DTC approval, the plan returns to normal operation.

Death of the Beneficiary

When the beneficiary dies, the plan must be closed and the remaining funds paid to the estate by December 31 of the year following the year of death. Any AHA repayment is settled first; the rest goes to the estate, with the taxable portion included in the estate’s income for that year.¹⁴

Changing Financial Institutions

If an issuer’s investment menu or fees no longer suit you, the entire plan can be transferred to another institution. The new plan must name the same beneficiary, and the money moves directly between institutions, so the transfer is not treated as a withdrawal and triggers no tax or repayment.¹⁵ One wrinkle for older beneficiaries: if the beneficiary is 59 or older at the start of the transfer year, the new plan must make the LDAPs the old plan would have paid for the rest of that year. Existing SDSP designations, rollover allowances, and qualifying family member holderships carry over automatically.

1
Canada Revenue Agency. RDSP Limits, Transfers, and Rollovers
2
Government of Canada. Registered Disability Savings Plan – How Much You Could Get in Grants and Bonds
3
Canada Revenue Agency. Registered Disability Savings Plan (RDSP) – Eligibility and Contributions
4
Canada Revenue Agency. Disability Tax Credit (DTC)
5
Government of Canada. Information Capsule: RDSP Plan Holder
6
Canada Revenue Agency. Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs
7
Canada Revenue Agency. Canada Disability Savings Grant and Canada Disability Savings Bond
8
Employment and Social Development Canada. Withdraw Money From Your Plan
9
Canada Revenue Agency. What Types of Payments Are Made From an RDSP
10
Employment and Social Development Canada. Assistance Holdback Amount and Repayment Obligation
11
Canada Revenue Agency. What Is a Specified Disability Savings Plan (SDSP)
12
Canada Revenue Agency. Tax Payable
13
Government of Canada. If You Lose Disability Tax Credit Approval
14
Canada Revenue Agency. Cessation of Disability or Death of a Beneficiary
15
Canada Revenue Agency. Transfer a Registered Disability Savings Plan