Life Long Learning - Funding Back to School

While your Registered Retirement Savings Plans (RRSPs) are intended to help you invest in your future and fund your retirement plan, borrowing money from your RRSP to help finance your dream of going back to school can also be an investment in your future.

The Lifelong Learning Plan (LLP) provides an opportunity for individuals who want to advance their education but do not have the funds available other than those inside their RRSP.  The LLP provides an interest-free loan (to yourself) from an RRSP for qualifying individuals, similar to the First-time Home Buyers Plan.  The LLP allows an individual to withdraw up to $10,000 a year from his/her RRSP to finance his own or a spouse’s or common-law partner’s full-time education or training at a qualifying educational institution.  If the LLP student is disabled, he or she may qualify for the LLP even if attending on a part-time basis. 

Before the withdrawal is made, the LLP student must:

·        Be enrolled in a qualifying educational program at a designated educational institution such as a university, college or other educational institution that qualifies for purposes of the education tax credit.

·        Have received a written offer to enroll before March of the following year in a qualifying educational program at a designated educational institution.  A qualifying educational program is an educational program that is at least three consecutive months in length and requires the student to spend at least 10 hours per week on courses or work in the program at a designated educational institution.

 Maximum withdrawal from an RRSP

You can borrow up to $10,000 per year, with a maximum of $20,000 over a four year period.  Any withdrawals over this amount will be included in your taxable income.

Can you participate more than once?

Yes, however all previously received amounts must be repaid before the beginning of the year of the re-participation.

How do these withdrawals affect recent RRSP contributions?

Similar to the Homebuyers plan, any RRSP contributions made within 89 days of the withdrawal will be ineligible to be deducted from income in any year.

Repayment of LLP

Under the LLP, you must repay your RRSP over a 10-year period, beginning the earlier of:

·        The 5^th calendar year after the year of the first withdrawal, or

·        The 2^nd consecutive year for which the student cannot claim the education credit for at least three months.

Every year, the participant must repay a portion of the amount borrowed from his RRSP, starting with one-tenth of the outstanding balance in the first year.  These repayments are not considered RRSP contributions and are not tax-deductible.  Repayments do not have to be made back into the same RRSP account the funds were withdrawn from, they can be made to any RRSP account the participant has.

If you are considering using your RRSPs to fund your education; keep in mind you will be losing tax deferred growth on your money while it is not invested in your RRSP.   If you have non-registered or TFSA funds available; you should generally consider these options first.  However, for who have most of their savings inside their RRSPs, the LLP provides an excellent opportunity to invest in your future.

If you want more information, give me a call.

Have a great weekend,

Tracey

 

 

 

Source:  Invesco