If you plan to enroll in a learning program, you can access funds in your Registered Retirement Savings Plan (RRSP) through the Lifelong Learning Plan (LLP).
The LLP is a tax-free withdrawal from an RRSP for learning purposes.
What is the Lifelong Learning Plan?
Through the (LLP), you can withdraw up to $10,000 in a calendar year from your RRSP for a full-time training or education program.
You can use the Lifelong Learning Plan withdrawals for you, your spouse, or your common-law partner, but not your children.
The Registered Retirement Savings Plan (RESP) enables you to save for your children’s education.
How Does the Lifelong Learning Plan Work?
To withdraw from your RRSP using the Lifelong Learning Plan, you must meet the eligibility requirements.
First, you must be a Canadian resident and have an RRSP.
Additionally, you must be enrolled in a qualifying educational program as a full-time student to access funds through the LLP.
You can qualify for the Lifelong Learning Plan as a part-time student in certain situations.
Part-time students with certain disability conditions can also use the LLP for training and education.
As a Lifelong Learning Plan student, you must be enrolled in your qualifying program before March of the following year after you withdraw from your RRSP through the LLP.
You must still be enrolled in the qualifying program in April the following year after you withdraw from the LLP unless you have already completed the program.
If you withdrew from an LLP in the previous year, your repayment period must not have started for continued eligibility.
To withdraw from your RRSP using the Lifelong Learning Plan, fill out and submit Form RC96, Lifelong Learning Plan (LLP) Request to Withdraw Funds from an RRSP, to your RRSP issuer.
The annual withdrawal limit for the LLP is $10,000, and you cannot exceed a withdrawal of $20,000 when withdrawing through the Lifelong Learning Plan.
When you fully repay your LLP balance, you can participate in the Lifelong Learning Plan again in the following year after bringing the balance to zero.
If you withdraw more than the annual limit of $10,000 and the total limit of $20,000, your RRSP issuer will withhold taxes on the excess amount.
The Canada Revenue Agency (CRA) recognizes the excess amount as income in the year.
You can keep withdrawing from an LLP, provided you meet the eligibility requirements until your repayment period starts or in January of the fourth calendar year following the year you made your first withdrawal from the LLP, whichever comes first.
Repaying the Lifelong Learning Plan
The CRA does not consider RRSP withdrawals as income through the Lifelong Learning Plan.
You are exempt from paying taxes on these withdrawals, and your RRSP issuer will not withhold taxes.
However, you need to repay the money you withdraw within ten years.
To repay your LLP withdrawals, you would contribute to your RRSP, Pooled Registered Pension Plan (PRPP), or Specified Pension Plan (SPP) and designate the amount as an LLP repayment.
Use Schedule 7, RRSP, PRPP and SPP Unused Contributions, Transfers, and HBP or LLP Activities.
Failure to repay your Lifelong Learning Plan withdrawals will result in tax implications.
If you pay less than the required amount, you need to report the difference in line 12900 when you file your income tax and benefit return.
The outstanding amount is subject to tax.
If you have an LLP balance, you are allowed to pay more than the required amount.
This reduces the amounts you will have to pay in the following years.
You can calculate your repayment amount for the following year by dividing your LLP balance by the remaining years in your repayment period.
Your notice of assessment or reassessment that the CRA sends you will also show you the repayment amount for the following year.
Does Using the Lifelong Learning Plan Make Sense?
The Lifelong Learning Plan can be beneficial if you have enough savings in your Registered Retirement Plan and you, your spouse, or your common-law partner need money for education.
Consider the fact that the money withdrawn from your RRSP is not invested and is therefore not growing.
Compare potential investment growth vs other sources of funding such as a line of credit or loan from a financial institution.
Frequently Asked Questions
- Can I take money out of my RRSP for school?
Yes, if you meet the criteria for the Lifelong Learning Plan, you can borrow money from your RRSP for school, tax-free. While you can also withdraw from your RRSP without the LLP, you will need to pay taxes on your withdrawals.
- What is an alternative to borrowing from RRSP for Lifelong Learning Plan?
Alternatives to borrowing from your RRSP for a Lifelong Learning Plan include using your general savings in your Tax-Free Savings Account (TFSA), getting a loan from family and friends, or getting a student loan from the bank.