The Account That Could Help With Your Next Career Move

With the registered retirement savings plan (RRSP) deadline right around the corner on March 2, many Canadians may be thinking about how best to save for retirement. But RRSPs can play a role in your financial future a lot sooner than that. The Lifelong Learning Plan (LLP), a long-standing but lesser-known government initiative, gives qualifying adults the chance to invest in full-time education by borrowing from their retirement savings.

Unlike the registered education savings plan (RESP), which is meant to help families save for children to one day go to post-secondary school, the LLP is meant to help RRSP holders start learning again. If you’re thinking about going back to school, you should consider tapping into what’s essentially an interest-free loan to yourself. Here’s what you need to know.

How does the Lifelong Learning Plan work?

The LLP is available to all Canadian residents who have an RRSP and wish to go back to school full time at an eligible institution, provided that they are 71 or younger when they apply. Adults with disabilities may be eligible to enroll in part-time programs.

Qualifying individuals can borrow up to $10,000 per calendar year, up to a maximum of $20,000. The money can be used by you or your partner, but it can’t be used to finance a child’s education. If you and your spouse or partner have RRSPs, you can both participate in the LLP individually or withdraw $10,000 each per calendar year, up to a limit of $20,000 each and put up to $40,000 toward one person’s education.¹ Note that your personal withdrawal limit for the calendar year still applies.

To use the LLP, you must be enrolled full-time at a Canadian college or university, or at an educational institution certified by Employment and Social Development Canada for occupation-specific skills training. You can’t use it to pay for that one course you never completed. You may also be able to use the LLP if you’re attending an international school, as long as you’re taking a program that will eventually lead to a bachelor’s degree or higher.

Will I pay tax on my withdrawal?

Money withdrawn from your RRSP is typically subject to tax, but not if you withdraw money under the LLP, as long as you pay the money back over the next 10 years, or by the end of the year you turn 71. Generally, you will need to pay one-tenth of the loan back per year, starting no later than the fifth year after your first LLP withdrawal. You could also choose to pay it back faster.

Please note that if you miss one of the annual repayment deadlines, the money will get added to your taxable income for the year.

Is the LLP right for me?

Like all financial decisions, it depends, but if you’re hoping to go back to school, there are a few benefits that might make the LLP worth considering.

First, as long as you repay it on time, it’s a tax- and interest-free loan to yourself. This is a big plus considering how much interest you could pay on a $20,000 personal loan over a decade. No matter how low rates get, they will likely never be zero.

The LLP is also great for adult learners who wouldn’t be eligible for student loans or grants due to their household income, assets or even academic qualifications. Approval to use the plan is typically granted, provided that your program of choice qualifies. The money can also be used more flexibly than with many other student loans and scholarships. For example, it can be used to pay for living expenses while you study, reducing your day-to-day costs and increasing cash flow.

If you’re concerned about repaying the loan within 10 years or making the annual repayment, however, you might want to consider other options, as any amount that you do not repay when due will be included in your income for the year it was due. You could also consider borrowing a smaller amount from your RRSP.

Removing money from your RRSP for a decade could also impact your long-term retirement goals, since you’ll be hitting pause on the compound returns those dollars could generate. If you want to save for education specifically and don’t want to impact your retirement savings, you could consider using a tax-free savings account (TFSA).

How do LLP repayments work?

When it comes to repaying your RRSP, the most important thing you can do is mark those payment dates on your calendar – and make payments on time to avoid the income tax hit.

Everyone who uses the plan has to repay the amount in full within 10 years – or before the end of the year they turn 71, if that’s in less than 10 years – but there are some important differences on when those LLP payments must start. If you keep attending school full-time at least three months a year, repayment begins the fifth year after your first LLP withdrawal. If you don’t meet that criterion for two years in a row, repayment starts in the second of those two years.

If you don’t finish your program, you can still take 10 years to repay the funds if less than 75% of your tuition is refundable. If you leave the program before April of the year after the withdrawal and 75% or more of the tuition can be refunded, you will need to cancel the LLP withdrawal. If you don’t, the amount you withdrew will be included in your income at tax time.

The idea of borrowing from your RRSP years, or perhaps even decades early might feel strange. The account was designed to encourage saving for retirement, after all. But for those yearning to head back to campus – whether to fulfil a lifelong dream or simply keep up in a challenging job market – the LLP can help you grow, adapt and invest in yourself right now.

For more information about the Lifelong Learning Plan, you can visit the Government of Canada’s website.