RRSP or RRIF Rollover to a Disabled Child's RDSP in Ontario

If someone close to you has died and left an RRSP or RRIF, and you have a child or grandchild with a disability, you may be wondering whether that money can move into a Registered Disability Savings Plan (RDSP) without a large tax bill. The answer can be yes, but only in particular circumstances and with the right paperwork.

This article explains how the rollover works, who can qualify, and where the limits are. The details depend on the family's facts and on tax figures that change, so treat this as a map for your questions to an accountant or lawyer.

Why the tax question comes up

For an unmatured RRSP, the person who died is considered to have received the fair market value of everything in the plan immediately before death, and that amount is taxed on the final return. For a RRIF with a named beneficiary and no successor annuitant, the deceased is generally treated the same way.

That can mean a large tax bill for the estate, so the rules that move the tax to a survivor, or defer it, matter a great deal. The RDSP rollover is one of those rules.

Who can qualify for a deferral

Amounts paid to a qualifying survivor from an RRSP can be treated as a refund of premiums, taxed to the survivor instead of the deceased. Qualifying survivors are the spouse or common-law partner and a financially dependent child or grandchild.

Generally, a child is financially dependent if they lived with and depended on the person who died, and their net income for the previous year was below the unreduced maximum basic personal amount. A higher threshold, which adds the disability amount, applies if the dependence was due to mental or physical infirmity. Because the basic personal amount changes every year, the current figure should be confirmed on the CRA website.

How the RDSP rollover works

RRSP or RRIF proceeds can be rolled into the RDSP of a financially dependent infirm child or grandchild. The rollover cannot exceed the RDSP lifetime limit of $200,000, and it requires Form RC4625.

If the money is paid to the estate rather than directly to the child, the amount can still be a refund of premiums when a qualifying survivor is also a beneficiary of the estate and the legal representative and the survivor jointly file Form T2019. For a RRIF paid through the estate, a joint Form T1090 can treat amounts paid to a qualifying survivor as a designated benefit, which reduces the amount taxed to the deceased.

RRSPs and RRIFs with a named beneficiary are excluded from the value used to calculate Estate Administration Tax, so a beneficiary designation can also keep the plan out of probate.

Points that are easy to miss

• The rollover only works if there is an RDSP for the child to receive it. Opening one takes time, so it is worth asking early.
• Growth after death is taxed separately: income earned in an RRSP after the annuitant's death is taxed to the designated beneficiary or the estate in the year it is received, not to the deceased.
• A spouse or common-law partner may be able to continue a RRIF as successor annuitant, so the deceased is not treated as receiving the RRIF value at death.
• Funds held in an RDSP are an exempt asset for ODSP purposes, which is one reason families look at this route.
• The filing deadline for Form T2019 and the income thresholds change, so confirm current figures before relying on them.

What to do next

• Find the plan statements and the beneficiary designation form, if any.
• Confirm whether the child or grandchild has an RDSP, or can open one.
• Ask an accountant whether the child meets the financial dependence test for the year of death.
• Ask the estate trustee to speak with a lawyer or accountant before any RRSP or RRIF money is paid out.
• Keep copies of every form filed, including RC4625, T2019 and T1090 where they apply.

Frequently asked questions