If you or your spouse are planning to go back to school and you have some money in your RRSP, the Lifelong Learning Plan can be a good option to finance your education.
What is the Lifelong Learning Plan, and how does it work?
The Lifelong Learning Plan (LLP) lets you withdraw from your registered retirement savings plan (RRSP) for the purpose of funding your full-time training or education. You can also use it to finance your spouse’s or common-law partner’s education, but it can’t be used for your children or partner’s children.
Like the Home Buyer’s Plan (HBP) for first-time home buyers, LLP allows tax-free withdrawals from your RRSP that must be repaid. But unlike HBP with 15 years, LLP withdrawals must be repaid within 10 years.
You can withdraw up to $10,000 per year for a maximum of $20,000. This works out to up to $40,000 if your spouse also participates in the program.
LLP also has the 90-day waiting period for withdrawals. That is, only contributions made to your RRSP within the last 90 days of the date of withdrawal will qualify for withdrawals under LLP. Any contributions within the 90 days may not qualify for tax deductions in any year.
You can apply for LLP multiple times over your lifetime. If you’ve repaid a previous amount withdrawn under the LLP, you’re eligible to withdraw another one.
What are the eligibility conditions for Lifetime Learning Plan?
To be eligible to participate in the program, you must own an RRSP and be a Canadian resident.
More importantly, the student (you or your partner) must be enrolled on a full-time basis in a qualifying education program or has an offer to enroll before March of the following year, at a designated educational institution.
What is a qualifying education program for the purpose of LLP?
A qualifying education program must be at the post-secondary school level, last 3 consecutive months or longer and requires at least 10 hours of coursework per week.
Generally, a designated education institution is a Canadian university, college, and other educational institutions or other foreign universities.
The full-time eligibility condition of 10 hours per week of courses or work in the program can be waived for students that meet one of these disability conditions: the student can claim the disability amount for that year or cannot be enrolled on a full-time basis because of a mental of physical impairment.
In summary, to be eligible for LLP withdrawals, you must
- Be a Canadian Resident
- Enrolled or has an offer to enroll in a qualifying education program on a full time basis
How do you make an LLP withdrawal?
The process is similar to withdrawals made under the Home buyers’ Plan. Simply complete Form RC96, Lifelong Learning Plan (LLP) Request to Withdraw Funds from an RRSP each time you need to make a withdrawal.
You should only fill Part 1. The LLP student can be either yourself or your spouse. Once you’re done, give the form to your RRSP issuer to fill Part 2 and process the withdrawal.
Can you withdraw under Lifelong Learning Plan while participating in a Home Buyers’ Plan?
Yes. You can participate in both programs at the same time. So, LLP withdrawals can be made if you still have a balance owing under the HBP program.
However, you should consider how the withdrawals will affect your retirement income.
Lifelong Learning Plan Repayment
The LLP allows up to 10 years for repayment of the amount borrowed. Every year, a tenth of the total borrowed amount must be repaid at a minimum.
You can make accelerated payments to pay back the borrowed sum faster. On the other hand, if you pay a lower amount than the minimum expected for a particular year, the difference will be added to your income and taxed at your marginal rate for that year.
Repayments are expected in less than 10 years in the following situations:
- You turn 71
You can’t contribute to your RRSP after you turn 71, so you won’t be able to designate a contribution as an LLP repayment.
To repay the balance owing, you’ll either have to
- Repay the remaining balance, or a part, in the year you turn 71; or
- the balance will be divided by the number of years remaining, and the amount added to each year’s income.
- The LLP participant dies: Generally, the remaining balance will be added to the deceased participant’s income for the year and taxed.
Alternatively, the surviving spouse and the legal representative of the deceased can make an election for the repayments to be taken over by the surviving spouse.
- You become a non-resident; or
- You leave school or did not enroll on time: If you quit school and did not complete your education, you may have to cancel your LLP withdrawal
When will repayment start?
Payments are due, at the latest, by the fifth year after you made the first withdrawal under the program. In most instances, repayments will be required before this date.
For example, if you cease to be a student, CRA expects you to start repaying by the second year after the year you stop being a student.
To confirm the year your repayments must start, Canada Revenue Agency has an online tool here. Simply answer the series of questions to know when to start paying.
How do you make repayments?
To start making LLP repayments, simply contribute to any of your existing RRSP or open a new one. The contribution must be made in the repayment year, or within the first 60 days of the following year.
You need to complete Schedule 7, RRSP and PRPP Unused Contributions, Transfers, and LLP or LLP Activities to designate an RRSP contribution as a LLP repayment. Otherwise, the contribution will be treated like a regular RRSP contribution and the expected repayment amount for that year added to your income.
Every year, you’ll get an LLP Statement of Account from Canada Revenue Agency. It will show your outstanding LLP balance, how much you still owe and how much you have repaid.
Like the Home Buyers’ Plan, certain contributions can’t be designated as repayments under the LLP. These includes contributions you make to your spouse’s or common-law’s RRSP, amounts designated as repayments under Home Buyers’ Plan and so on.
What are the other alternatives to Lifelong Learning Plan?
If possible, use some of the savings in your unregistered accounts. But if you have to use the funds in a registered account, here are 2 other alternatives to the Lifelong Learning Plan.
- Tax-free Savings Account: If you have some funds in your TFSA, it could be a better option to withdrawing from your RRSP. The withdrawals are completely tax-free and there’s a no requirement to repay, though you should definitely repay the amount you withdraw if you can. Learn more about TSFA through these TFSA FAQs.
- Early RRSP Withdrawal: If you’re in a lower tax bracket, you should definitely consider making an early regular withdrawal from your RRSP. You won’t have to pay back the amount, though you’ll permanently lose your contribution room and be missing out on the long-term tax-sheltered growth of the money taken out.
Some Frequently Asked Questions
LLP allows Canadians to withdraw tax-free from their RRSP to fund the educational expenses of a qualified program
You can get up to $10,000 per year to cover the cost of an eligible educational program. The maximum you can withdraw in total is $20,000.
No, you won’t. LLP won’t attract the normal withholding tax charged on early RRSP withdrawals.
Generally the year after your program ends. But repayments must start, at the latest, 5 years after the withdrawal was made.
Repayments are expected to be completed in 10 years. Every year, a tenth of the total amount borrowed must be repaid at a minimum.
To be eligible for LLP, you must be a Canadian Resident and be enrolled in a qualifying educational program on a full time basis
The Lifelong Learning Plan is definitely a great tool for anyone interested in financing their education. It may not be the right option for everyone, but it should be considered along with the other sources of financing available like TFSA.