Using Disability Savings Plans for Education

Posted 21 Sep 2016 by Lorna Maughan

If your child qualifies for the Disability Tax Credit, an RDSP might help with the costs of tuition and living expenses while going to school, if you plan ahead accordingly. The plan receives grants like an RESP but making withdrawals require that specific criteria be met first.

How can Registered Disability Savings Plans (RDSPs) work in conjunction with RESPs for those children who are eligible for the Disability Tax Credit (DTC)? The two plans are very similar in that they each receive grants from the government and tout tax deferred growth of money in the plan. The key difference in the use of the plans is that RESPs can only be used when registered for post-secondary education, whilst RDSPs can be used for any purpose.

If you have a child or grandchild who would qualify for an RDSP and also has the prospect of continuing their education beyond high school, taking a good look at both plans and their details could present a perfect opportunity to benefit from both grants available and the tax efficient investment returns. If there is any uncertainty about the DTC-eligible child continuing their education, and they have siblings, then a family RESP could still be beneficial as the funds can be used for any of the beneficiaries under the plan.

While there aren’t as strict withdrawal criteria as RESPs, RDSPs have their own rules to access funds within the plan. The beneficiary can take “Regular Annual Income Payments (Lifetime Disability Assistance Payments)” at any time after the plan is opened, but in most cases these payments should be delayed until 10 years after the first grant payment is received to avoid having to pay those grants back to the government. So in order to truly benefit from an RDSP for tuition purposes, contributions to the plan should be made 10+ years before the beneficiary enters post-secondary.

If your DTC-eligible child has an RESP and doesn’t go to school, as mentioned in another article, the RESP funds can be transferred to their RDSP, repaying the CESG but earning RDSP grants on the new contribution.

With careful planning, a combination of RDSP and RESP income can be of significant help to alleviate the costs of post-secondary education. For more information, absolutely get in touch!