Back to school time isn’t just for kids. More and more adults are returning to the classroom to start or finish their degrees or change careers. If college or university seems financially out of reach for you in your adult years, consider using your RRSPs to help with the cost. With the Lifelong Learning Plan (LLP), borrowing your own money can be penalty-free.
What is the LLP?
The Lifelong Learning Plan allows you to withdraw up to $10,000 per year (maximum total withdrawal of $20,000) of your qualifying RRSPs if you are attending full-time studies at a qualifying college or university without those harsh RRSP early withdrawal penalties.
The funds you withdraw don’t necessarily need to be used for tuition. As long as you meet the qualifications to withdraw using the LLP, the money can be used for living expenses, childcare, or whatever you need during your enrollment.
Naturally, you must own an RRSP to qualify. You must also be a Canadian citizen and be enrolled in full-time studies in a recognized educational program (or be accepted before March of the following year). If you are disabled, you may meet the qualifications to attend a part time study program.
If your spouse is returning to school, you may use either your RRSPs or your spouse’s (or both) for the LLP. The maximums apply to the individuals – not the couple. For example, if you decide to complete your Business Administration degree and both you and your spouse own RRSPs, withdrawals totaling $40,000 could qualify for the LLP:
- Year One – $10,000 from your RRSP and your spouse withdraws an additional $10,000 for you.
- Year Two – same.
- Total – $40,000.
It’s important o to note that although you’d be the only student, each RRSP (yours and your spouse’s) must be repaid $20,000.
How Do I Withdraw the Funds?
Once you’ve qualified and decided the amount you’d like to withdraw, talk to your RRSP provider – do not just withdraw the funds directly. Unless your provider completes the proper paperwork, you’re going to face tax implications and nobody wants that. Your provider can also ensure you’re withdrawing the proper amounts. RRSPs purchased within 90 days of the withdrawal, for example, are not eligible for the LLP.
How Do I Repay My RRSP?
With more RRSPs of course! Once your repayment period starts, all you need to do is purchase RRSPs each year to refill your fund and designate the RRSPs as LLP repayment.
When your repayment period starts depends on how long you’re in school but it’s usually the year after you finish (unless you’re in school for more than five years, in which case your repayment will begin in the fifth year). Payments are normally made over ten years – 1/10 per year. In other words, if you withdraw $10,000 through the LLP, you’d purchase a minimum of $1,000 in RRSPs per year for ten years and designate these as LLP repayment on your tax return.
CRA issues your repayment amounts annually on your Notice of Assessment. If you are a CRA My Account holder, you can check your balances any time using the online portal. Additionally, CRA My Account holders can autofill LLP amounts right to their returns using the Auto-fill my return feature at tax time.