Registered disability savings plans (RDSPs) were introduced in the 2007 federal budget, with the first accounts opened in December 2008. Adoption by financial institutions was gradual, and even today not every institution offers RDSPs. Although most Canadians with RDSPs have focused on making contributions, understanding how withdrawals work is essential for anyone who holds or is considering opening one.
If you qualify for the disability tax credit (DTC) — a non-refundable tax credit for Canadians with an eligible physical or mental impairment — you can open an RDSP. The DTC approval comes from the Canada Revenue Agency (CRA) and is the gateway to opening and contributing to an RDSP in addition to any potential annual tax savings the DTC provides.
Government grants and bonds
One of the most powerful features of the RDSP is that contributions may attract government grants and bonds. The amounts depend on the beneficiary’s adjusted family net income. For 2025, government grants follow a tiered structure based on income. For those with adjusted family net income below $114,750, the grants include: $3 for every $1 contributed on the first $500 of contributions (up to $1,500 in grants annually) and $2 for every $1 contributed on the next $1,000 (up to $2,000 more in grants annually). For higher-income families, the grant is dollar-for-dollar on the first $1,000 of contributions, up to a maximum of $1,000 in grants.
These grants and any bonds are intended to boost long-term savings for Canadians with disabilities, making the RDSP a unique and valuable savings vehicle. Because they are generous, they also come with specific rules on withdrawal and potential repayment that you need to understand before taking money out.
10-year rule
Withdrawals from an RDSP are called disability assistance payments (DAPs). Taking a DAP can trigger repayment of government grants and bonds that were paid into the plan. Repayment can be significant: when repayments apply, the recovery of grants and bonds is calculated at up to $3 for every $1 withdrawn.
To avoid having to repay those amounts, you must generally wait at least 10 years after the last government grant or bond was paid into the plan. Repayments are capped at the total grants and bonds received during the previous 10-year period. This “10-year rule” is a key reason the RDSP is designed primarily as a long-term savings vehicle: early withdrawals can reduce the net benefit of prior government contributions.
Grants and bonds stop being paid after the beneficiary turns 49, so in many cases account holders effectively need to wait until age 60 to be able to withdraw without triggering grant repayments. Your original contributions to the RDSP can be withdrawn tax-free, but any government grants and the investment growth on those amounts are taxable to the beneficiary when paid out.
When you turn 60
By the end of the year in which the beneficiary turns 60, withdrawals must begin. These post-59 withdrawals are known as lifetime disability assistance payments (LDAPs). The plan administrator calculates the minimum annual LDAP using a government formula based on the beneficiary’s age and the RDSP balance; the institution that holds the account is responsible for performing that calculation and ensuring the withdrawals meet regulatory requirements.
Every RDSP withdrawal is split into a tax-free portion (representing original contributions) and a taxable portion (representing government grants, bonds and investment income). The split is determined using prescribed formulas applied by the financial institution, so account holders should review statements and ask their provider for details about how each payment is allocated for tax purposes.
Shortened life expectancy
If a beneficiary has a health condition certified by a doctor that is likely to significantly shorten life expectancy, the account can be converted to a specified disability savings plan (SDSP). With an SDSP designation, it may be possible to withdraw up to $10,000 in taxable amounts annually without triggering forced grant and bond repayments, subject to LDAP limits and other conditions set out by the program. This option is specifically designed to provide greater flexibility for people facing serious health challenges.
How to use your RDSP
An RDSP is most effective when treated as a long-term retirement and income-support tool for people with disabilities. That long horizon lets the government grants and bonds compound and helps reduce the likelihood of incurring grant repayments. For parents opening RDSPs for children, this long-term perspective can create family planning considerations — for example, balancing contributions among multiple children or coordinating RDSPs with other savings vehicles.
Even if you don’t have a withdrawal plan when you open an RDSP, it’s worthwhile to understand the rules and timing. Here are practical steps to consider before making withdrawals:
- Confirm DTC eligibility and keep documentation current with the CRA.
- Review the RDSP contribution and grant history so you and your plan administrator can determine if the 10-year rule applies.
- Ask your financial institution to explain how withdrawals will be allocated between tax-free and taxable portions.
- If you think you may need funds earlier, weigh the cost of potential grant repayments against the benefit of having had larger assets invested inside the RDSP.
- Discuss family-level implications — including fairness among siblings and impact on other income-tested programs — with a trusted financial or tax professional.
In summary, RDSPs offer significant government support to help Canadians with disabilities build long-term savings, but that support comes with rules about when and how money can be withdrawn without penalties. Understanding the 10-year rule, the distinction between DAPs and LDAPs, the tax treatment of withdrawals, and the SDSP option for shortened life expectancy will help beneficiaries and their families make informed choices about contributions and withdrawals.
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