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.
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