What is the RRSP Lifelong Learning Plan?

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The RRSP Lifelong Learning Plan is a great way to pay for your post-secondary education if you want to avoid taking out student loans or liquidating other savings. If you have an RRSP that you’ve been contributing to, you can now borrow some of this cash to pay your tuition & fees when you back to school.

Getting a diploma or degree is a great way to increase your income. It allows you to move up in your existing career, or pursue a new career entirely. However, going back to school is expensive! And it gets more expensive every year.

If you’re contemplating enrolling in school full-time to improve your skills, but wondering how you’re going to pay for it, the RRSP Lifelong Learning Plan is a possible option.

What is the RRSP Lifelong Learning Plan?

The RRSP Lifelong Learning Plan (LLP) lets you withdraw up to $10,000 per year for a maximum of $20,000 from your RRSP without penalty for to go back to school. This withdrawal can be used by you, your spouse, or your common-law partner to enroll full-time in an eligible post-secondary institution.

The Lifelong Learning Plan is an awesome way to use money you’ve set aside in your RRSP that you wouldn’t otherwise be able to access until retirement. If you’re trying to avoid or simply don’t qualify for student loans, this is an excellent alternative.

Normally taking money out of your RRSP before retirement would result in income taxes owing. However, under the LLP, you’re actually taking the money out as a tax-free loan to yourself. Because you will pay it back, you don’t have to pay any income taxes on the amount you withdraw.

What is an RRSP?

The Registered Retirement Savings Plan (RRSP) is a tax-advantaged saving or investment account for your retirement. Your individual contribution room is proportional to your taxable income. It works out to be approximately 18% of your gross income earned.

Unlike the Tax-Free Savings Account (TFSA), money in your RRSP is simply tax-deferred, not tax-free. This means you won’t pay taxes on it the years you make your contributions. But your withdrawals from your RRSP in retirement will be subject to income tax at that time.

Because your RRSP is meant to be for retirement, there are very few ways to access the money before then. The Lifelong Learning Plan (LLP) is one option, but you can also withdraw up to $35,000 from your RRSP for a down-payment on your first home under the RRSP First Time Home Buyer’s Plan (HBP).

How long do you have to pay back the Lifelong Learning Plan?

You will have 10 years to repay the amount you withdraw from your RRSP under the Lifelong Learning Plan. Your repayment begins 2 years after you’ve stopped being a student.

If you withdrew the full $20,000 under the LLP, your repayment amount will be $166.67 per month ($2,000 per year).

You can and should continue to contribute more to your RRSP on top of your LLP repayments. These will be counted as new RRSP contributions. You don’t have to specify what your contributions are for when you make them throughout the year. When you file your taxes you will indicate how much of your RRSP contributions are to repay your LLP and how much are new contributions for your retirement.

Withdrawing from your RRSP for the Lifelong Learning Plan

This is obvious but you need to actually have $20,000 in your RRSP if you want to withdraw $20,000 for the Lifelong Learning Plan. To amass $20,000 in your RRSP, you’d need to save approximately $333 per month for 5 years.

The best way to grow your RRSP fast is to invest in the stock market. You can use Questrade, if your comfortable managing your own portfolio, or Wealthsimple if you want a hands-off approach.

Downsides of the RRSP Lifelong Learning Plan

The Lifelong Learning Plan is a great tool if you need it, but it’s not the best option out there. In fact, if you qualify for them, you’re still probably better off taking out government student loans to fund your post-secondary education.

It might sound counterintuitive to go into debt for your education when you have cash available, but government student loans are an incredible tax-advantaged option to pay for your school.

Why you should use student loans instead of your RRSP to pay for school

Here are the benefits of using government student loans instead of your RRSP to pay for your post-secondary education:

  • student loans do not accrue interest while you are a student
  • student loans have very low interest rates, typically below 5%
  • student loan interest is tax-deductible
  • student loans have flexible repayment terms, with low minimum payments
  • leaving your RRSP invested allows this money to grow tax-deferred while you study

However, if you do not qualify for government student loans, then withdrawing from your RRSP under the Lifelong Learning Plan can make sense!

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