RRSP Lifelong Learning Plan (LLP)
It occasionally happens when someone with an established career (with an RRSP) wants something more and decides to go back to school to add to their skill set. However, leaving the job which pays the bills can be challenging especially if the education is pricey. This is one situation where the RRSP Lifelong Learning Plan (LLP) can be useful.
What is the RRSP Lifelong Learning Plan (LLP)?
The LLP is a way for an RRSP account holder (or spouse) to fund up to $10,000 per year (max $20k) in education costs without having to pay any income tax on the withdrawal.
Similar to the home buyers plan, there is a time limit in which the funds need to be paid back to the RRSP. In the case of the lifelong learning plan, the account holder has 10 years to pay back the borrowed amount.
What’s the Catch?
Here are the qualification guidelines:
- You have an RRSP;
- You are a Canadian resident; and
- The LLP student is enrolled (or has received an offer to enrol before March of the next year):
- 1. as a full-time student;
- 2. at a designated educational institution; and
- 3. in a qualifying educational program.
The LLP student has to:
- enrol before March of the year after the LLP withdrawal; and
- still be enrolled in that program in April of the year after the LLP withdrawal, unless the student has already completed the program by then.
Repayment of the LLP
There will come a point when the payments will have to commence. Payments will start either:
- The 5th year after your first LLP withdrawal or
- The 2nd year in which the student is not a full time student for at least 3 months.
When payments are required, they will be 1/10th of the total borrowed amount and are not tax deductible. Any amounts not repaid when they are due are added to income for that year.
Final Thoughts:
This is a very brief primer of the RRSP lifelong learning plan. The LLP can be a great tool for those looking to fund their education without obtaining a traditional loan. Of course, after finishing the training, I would suggest paying back the RRSP as soon as possible to continue the tax free investment growth.
What do you think? Would you use the LLP to fund your education?
If you are interested in this plan, you can find the nitty gritty details here: http://www.cra-arc.gc.ca/E/pub/tg/rc4112/rc4112-e.html
9 Comments, Comment or Ping
1. Four Pillars
If someone quits work altogether for a year or two then they are probably better off just withdrawing the money from the RRSP. The tax rate on the withdrawal money should be quite low (the actual income tax – not the withholding tax).
If you are ever in a situation where you can withdraw money from your rrsp with low to zero taxes being paid then you should think about doing it.
Jun 9th, 2009 @ 10:10 am
2. cannon_fodder
Imagine if you set up an RESP for your child(ren) and they don’t attend a qualifying post secondary school. You can transfer (except for any CESG contributions from the government) the amount into your RRSP and then fund your LLP.
So, by hook or by crook, somebody’s going to get an education!
I have thought that when I retire I might take courses at school for purely interests sake. I know that university used to offer the option to audit a course which I’m assuming would then not qualify under this program.
It wouldn’t surprise me if, during this economic hardship, there are more people investigating the benefits of returning to school to improve their skills.
Jun 9th, 2009 @ 10:18 am
3. Ray
I personally am always picking up new courses in different areas…….so I know that i will always need $$ for education I am still thinking of going back to school and continuing with Psychology I actually put aside money for that just in case….I use the TFSA right now for it, but as four pillars pointed out if I i stop working and go to full time school I might just withdraw from RRSP…..I think TFSA might be a better option than the LLP depending on your situation.
Jun 9th, 2009 @ 11:38 am
4. Kathryn
I am so grateful for scholarships so we haven’t had to go this route. My spouse has a year to go to get his PhD. We would have used it if a) we didn’t have the scholarships and b) if we hadn’t cashed out our RRSP under the Home Buyers Plan.
Jun 9th, 2009 @ 12:13 pm
5. Ms Save Money
I’m looking to go into grad school within the next couple of years and I’m hoping my company might be able to help me pay for school. In the US we don’t have a RRSP. I’ll be looking into scholarships and see if I can find my luck there.
Jun 9th, 2009 @ 2:26 pm
6. Finance Guy
Education has become so expensive that I would not go back unless my company offered to pay for at least part of it. Some people thing a secondary degree is a clear path to money, but they don’t understand how it could also lead to debt if you can’t find a job. When an employer offers to pay for your MBA, they’re saying that they actually need you to learn something and bring it back, and they will validate the expenses by paying for them.
Jun 9th, 2009 @ 2:53 pm
7. Erick
@Four Pillars – If you just do a straight withdrawal from the RRSP, the downside would be the permanent loss of contribution room that can be recouped through the LLP.
Jun 9th, 2009 @ 4:11 pm
8. Four Pillars
Eric – yes, that’s a good point. However, most people will never use up all their rrsp contribution room so losing a bit of room isn’t really a penalty for them.
Besides – if you don’t have any income in a year and withdraw $10k from your RRSP then you shouldn’t pay any income tax at all. I think that’s a good deal if you do something worthwhile with the money ie contribute to TFSA, pay for school, pay down mortgage etc.
Jun 9th, 2009 @ 4:31 pm
9. Tom @ Canadian Finance Blog
Similar to Four Pillars point, you would likely be better off with a regular withdrawal from your RRSP if you’re a full time student for the year. But if you worked for most of the year and went back to school in Sept, then it might make sense to use the LLP in that first year.
Jun 10th, 2009 @ 1:04 pm
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