Maximizing your RRSP to invest in your education

Have you been considering going back to school but are unsure of where to get the money?

If you have over the years saved money within an RRSP account, you can utilize those funds for post-secondary education. Introduced in 1999, the Lifelong Learning Plan allows a qualified individual to withdraw money from their RRSP for education purposes.

The Lifelong Learning Plan (LLP) allows you to withdraw money from your registered retirement savings plans (RRSPs) to finance full-time training and education for you or your spouse/common-law partner. You cannot participate in the LLP to fund your children’s training or education, or the training or education of your spouse’s/common-law partner’s children. As long as you meet the LLP conditions each year, you can withdraw amounts from your RRSPs until the fourth year after the year you make your first LLP withdrawal. You cannot withdraw more than $20,000 in total, and you do not have to include the withdrawn amounts in your income.

A few things to keep in mind:

  • There is a withdrawal limit of $10,000 per year, and the maximum withdrawal amount from an RRSP cannot exceed $20,000.
  • You or your spouse must be the owner of the Registered Retirements Savings Plan account.
  • The program must be full time at an eligible education institute with a duration length of at least three months.
  • You must be a Canadian resident. If the LLP participant does become a nonresident, he/she has 60 days to repay the outstanding balance.
  • Before a withdrawal is made, the LLP student must be enrolled in a full-time program in a qualified educational program and must have received a written offer to enroll before March of the following year.

Repayment under the Lifelong Learning Plan.

Every year, the participant must repay a portion of the amount borrowed from the RRSP, starting with one-tenth of the outstanding balance in the first year. It is important to understand that repayments are not considered RRSP contributions, are not tax-deductible and do not have to be made to the same RRSP account as the first withdrawal. Any amounts that are not repaid are calculated as income for that year and any LLP participants who have an outstanding balance at the end of the year must file a tax return each year until the LLP withdrawals have been fully repaid, even if the participant doesn’t owe any tax.

To be eligible to make LLP repayments over a 10-year period, the LLP student has to continue to be enrolled at the end of March of the year following the LLP withdrawal, unless the student has already completed the program. If the LLP student leaves the program before April of the year following the withdrawal, repayments can still be made over the 10-year period if less than 75% of the student’s tuition is refundable. If 75% or more of the LLP student’s tuition is refundable, the LLP withdrawal must be canceled. Each year the Canada Revenue Agency will send the participant an LLP Statement of Account that will show what has been repaid, the balance remaining to be repaid and the minimum repayment for the next year.

Under the LLP, for taxation years before 2017, the participant must repay their RRSP/PRPP over a 10-year period, beginning the earlier of

  • the fifth calendar year after the year of the first withdrawal, or
  • the second consecutive year for which the student cannot claim the education credit for at least three months.

For taxation years after 2016, the participant must repay their RRSP/PRPP over a 10-year period, beginning the earlier of

  • the fifth calendar year after the year of the first withdrawal, or
  • the second consecutive year for which the student is no longer considered a qualifying student for at least three months.

About the author: Parkview Wealth Management is an independent advisory firm providing wealth and estate planning strategies to business owners, professionals and families. Focused exclusively on building and preserving wealth, we deliver a disciplined approach to retirement income generation, minimizing taxes, risk management, and portfolio management.

Disclaimer: The information in this article is of a general nature and does not take into account your individual objectives, financial situation or needs. The content should not be relied upon or treated as a substitute for specific financial, insurance, legal or tax advice. Individuals should seek their independent professional advice to discuss their personal circumstances.