The 10-year rule for RDSP withdrawals, explained

An RDSP is built to pay out late, and the federal government protects that design with a repayment test. Every grant and bond dollar deposited in the previous 10 years sits in a reserve called the assistance holdback amount. Take money out before those deposits age past the 10 year mark and part of the reserve goes back to Ottawa.

Most people call this the 10 year rule. Two different rules now share that name. One applies when a plan is closed, deregistered or the beneficiary dies, and it claws back the whole reserve. The other applies to ordinary withdrawals, has been in force since 2014, and only claws back a slice. Confusing the two is the most common reason a withdrawal costs more than the holder expected.

What is the 10-year rule for RDSP withdrawals?

The rule sets aside every Canada Disability Savings Grant and Canada Disability Savings Bond dollar paid into the plan during the previous 10 years, minus anything already repaid. That running total is the assistance holdback amount. Certain events send the entire amount back to the government, and any withdrawal sends part of it back.

The Canada Revenue Agency describes the reserve on its grant and bond page: issuers must hold back an amount equal to the grant and bond paid into the plan in the preceding 10 years, less any grant or bond already repaid for that period. The number moves every year. A grant drops out of that calculation after the applicable 10 year period has elapsed, so the reserve shrinks on its own as long as nothing new comes in.

One practical consequence sits inside the definition. A disability assistance payment is not allowed if, after the payment, the fair market value of the plan would fall below the assistance holdback amount. The reserve is not just a repayment formula. It is also a floor under the account.

Which events trigger a full repayment?

Closing the plan, losing its registration, or the death of the beneficiary can require repayment of the full applicable amount. A withdrawal is different. It uses the three dollars for one dollar rule, capped by the amount held back for the applicable period. Losing disability tax credit approval does not by itself trigger repayment.

The proportional rule replaced the older all or nothing treatment for withdrawals only. The Canada Revenue Agency grant and bond page still applies the full repayment when a plan is terminated, when it stops being an RDSP, and when the beneficiary dies. Employment and Social Development Canada repeats the same split on its withdrawal page.

The distinction is worth holding onto, because the two rules produce very different numbers on the same account. A holder who closes a plan carrying 21,000 dollars of reserve surrenders all 21,000. A holder who takes 2,000 dollars out of that same plan surrenders 6,000 and keeps the account running. Closing is rarely the cheaper route to a given amount of cash, and it ends the tax shelter at the same time.

How much grant and bond do you repay when you withdraw?

Three dollars of grant or bond for every dollar withdrawn, capped at the assistance holdback amount. Repayments are attributed to the grant and bond that make up the reserve in the order they were paid into the plan, so the oldest deposits are surrendered first. Below the cap, the arithmetic is simply the withdrawal multiplied by three.

The CRA publishes a worked example. Jeff opens a plan in 2020, contributes 1,500 dollars a year and collects the maximum 3,500 dollar grant each year. By 2025 the reserve is 21,000 dollars, six years at 3,500. He withdraws 600 dollars. Under the old rule the whole 21,000 would go back. Under the proportional rule he repays 1,800 dollars, roughly nine percent of that, and the reserve drops to 19,200.

The cap matters as much as the ratio. Once three times the withdrawal exceeds the reserve, the repayment stops at the reserve. A holder with 4,000 dollars of holdback who withdraws 10,000 dollars repays 4,000, not 30,000. That is the ceiling, and it is why large withdrawals from a mostly private plan behave very differently from small ones from a heavily subsidised plan.

When does the assistance holdback amount stop applying?

It falls to zero once 10 years have passed since the last grant or bond entered the plan. Since both stop by December 31 of the year the beneficiary turns 49, a plan that receives its final grant that year carries no reserve from the year the beneficiary turns 60 onward, which is exactly when payments must begin.

That alignment is deliberate. Grant and bond eligibility ends at 49, and lifetime disability assistance payments must start by the end of the year the beneficiary turns 60. Employment and Social Development Canada states plainly that at that point no grant or bond is subject to repayment on a withdrawal, a closure or the beneficiary's death. The grant and bond schedule is the reason the 10 year clock and the payout age line up.

Contribution timing therefore does more than fill the 200,000 dollar lifetime room. A contribution made at 48 pulls in grant that stays at risk until the beneficiary is 58. The same dollars contributed at 40 clear the reserve a decade earlier.

What happens if the beneficiary loses DTC approval?

Since 2021 the holder can keep the plan open. No new contributions, grants or bonds are allowed, but withdrawals stay available and nothing is repaid simply because approval lapsed. If the holder does withdraw or close before age 60, the repayment window is measured from the loss of approval and narrows once the beneficiary passes 50.

The same windows decide the repayment if the plan is closed or the beneficiary dies while approval is lapsed. Keeping DTC status current is therefore not only an eligibility question, it changes the size of the claw back. The CRA sets out the surrounding mechanics on its page about cessation of disability or death of a beneficiary, including the requirement to close the plan and pay the estate by December 31 of the year after the beneficiary dies.

Approval can also come back. If the beneficiary is certified again for a later year, contributions, grants and bonds resume under the ordinary rules, and the reserve rebuilds from whatever new grant and bond arrives. The years spent without approval produce no entitlement of their own, which is the quiet cost of letting a certificate lapse.

Are there exceptions to the repayment?

Yes, one. When a doctor or nurse practitioner certifies in writing that the beneficiary will not live longer than five years, the plan can be elected a specified disability savings plan. The CRA then allows annual withdrawals of up to 10,000 dollars in taxable plan savings, plus a pro-rated share of contributions, without triggering repayment.

The certification also creates a specified year, which is the year of certification plus the five following calendar years. A year does not qualify unless the certificate was given to the issuer in or before that year. If a practitioner certifies in 2024 but the issuer only receives the paperwork in 2025, the specified years run 2025 through 2029. Timing of the paperwork, not the diagnosis, sets the clock.

How much can be withdrawn in a single year?

Lifetime disability assistance payments are capped by a formula, and lump sum payments depend on what the issuer offers. Outside a specified year the annual lifetime payment cannot exceed the plan value at the start of the year divided by the greater of 80 and the beneficiary's age, plus three, minus that age.

The CRA writes it as A divided by the sum of B plus 3 minus C, plus D. A is the fair market value at the start of the year, B is the greater of 80 and the beneficiary's age at the start of the year, C is that actual age, and D covers periodic payments from locked in annuity contracts. The full formula and a worked case sit on the CRA page describing the types of payments made from an RDSP.

A second ceiling applies when government money in the plan exceeds private money. That plan is a primarily government assisted plan, and in such a year payments cannot exceed the greater of the formula result and 10 percent of the plan value at the start of the year. The CRA sets out these additional rules for a primarily government assisted plan. Beneficiaries between 27 and 58 can direct that payments be made to them, provided the plan value stays above the reserve afterward.

How are RDSP withdrawals taxed?

Private contributions come back tax free. Grant, bond, rollover proceeds and investment income are taxable to the beneficiary in the year they are received. Every payment carries a proportional mix of both, so a withdrawal is never purely one or the other, and the issuer calculates the split.

Issuers report the taxable share on a T4A, as the CRA explains under reporting of payments from an RDSP. Because the beneficiary usually has modest income, the tax bill is often small, but it is real and it lands in the year of the payment. Our note on the tax treatment of withdrawals works through how that interacts with income tested benefits.

Planning around the 10 year clock

The rule rewards patience and punishes improvisation, which is uncomfortable when a family needs money now. Three habits reduce the damage: knowing the reserve before asking for anything, contributing early enough that the grant clears the window, and treating unassisted contributions as money that is not easily reachable.

First, know the reserve before requesting anything. The issuer can state the current assistance holdback amount, and three times the intended withdrawal tells you the cost immediately. Second, front load contributions. Grant collected early clears the 10 year window early. Third, treat unassisted contributions with care. Money contributed above the amount that attracts grant still cannot leave without triggering the proportional repayment, because the rule looks at the withdrawal, not at which dollars you think you are taking.

A rollover changes the picture too. Amounts moved in from a retirement plan or from an education plan count as private contributions for the government assisted plan test, but attract no grant. Our guide to moving RESP savings into an RDSP covers the conditions.

Reei.ca publishes plan by plan comparisons and calculators for Canadian RDSP holders. They can model the reserve and the payment formula, but the assistance holdback amount of record is the one your issuer holds. Confirm it with them before any withdrawal, and check the rules on transferring or closing a plan if a closure is on the table.