RRSP Lifelong Learning Plan
The smart money uses retirement savings to upgrade their education.
If you love to learn but don't have enough money saved, you can fund your education using your RRSPs. The Lifelong Learning Plan (LLP) allows you to withdraw up to $20,000 from your RRSPs to finance full-time training or education for you or your spouse.
You want to upgrade your skills or pursue that long-desired MBA, but are challenged to know how you'll cover tuition expenses. The good news is your RRSP savings can help fill the funding gaps.
As long as don't exceed the $20,000 withdrawal cap, you can take out as much as $10,000 annually or spread your withdrawals over a longer period (e.g. $5,000 a year for five years).
There's no limit to the number of times you can participate in the plan in your lifetime. Starting the year after you bring your balance to zero, you can participate in the LLP again and withdraw up to $20,000 over a new qualifying period. To qualify as an LLP student you must:
- Be accepted at a designated educational institution by a written offer to enroll (or conditionally enroll) before March of the following year in a qualifying educational program.
- Enroll in a qualifying educational program of at least three consecutive months in length, while requiring you to allocate at least ten hours per week to courses or work in the program.
- Enroll at a designated educational institution – a university, college, or other educational institution qualifying for the purpose of the education tax credit.
Repayment is easy.
Borrowing from yourself means no interest charges like traditional loans. But you still need to repay the full amount or else you'll be taxed on it. The Canada Revenue Agency will send you a "Statement of Account – Lifelong Learning Plan" every autumn listing repayments made, the balance yet to be repaid and the minimum repayment for the next year.
The start date for the repayments depends on your status as a student. In each year of your repayment period, you typically have to repay one-tenth of your original LLP balance until the full amount is repaid. Repayments are not tax-deductible as new contributions and they don't have to be repaid to the same RRSP from which they were withdrawn.
Tax returns must include all unpaid balances each year until the LLP withdrawals have been fully repaid, even if you don't owe tax. Any amount not repaid when it is due will be included in your income for the year it was due. You must repay each year at least 10% of the amount borrowed from your RRSP, less any overpayments in previous years.
Borrowing from your RRSP – more things to know.
By borrowing from your RRSP to gain an education under the LLP, you ensure you won't lose any of the benefits of the previous year's tax deduction and deferral. You can make repayments later or take sums into income as you see fit.
You do lose potential tax-deferred growth during the time the funds are out of your RRSP. So if you have a significant non-registered portfolio, you may want to consider using these other savings first.
Generally, you aren't allowed to withdraw funds from locked-in RRSPs. You also can't participate in the LLP after the end of the year you reach the age of 69 and you can't use your RRSP funds to finance a child's education.