What Is the Lifelong Learning Plan in Canada?
Do you want to go back to school as an adult? What about your spouse or common-law partner? Well, before you do, read our guide on the Lifelong Learning Plan to discover how it can help you in your new educational endeavour. Here, we will cover everything about LLP Canada, from eligibility and repayment to alternatives.
Stick around, and let’s dig in!
What Is the Lifelong Learning Plan?
The Lifelong Learning Plan (LLP) is a government-sponsored program and a provision applicable to the Registered Retirement Savings Plan (RRSP). It aims to provide funds for adults for full-time education and training. The plan is available for RRSP contributors, and it’s subject to limitations.
Currently, the maximum RRSP withdrawal for education is $10,000 per year for a total of $20,000. It’s essential to know that LLP Canada withdrawals are non-taxable and temporary.
Moreover, this limit applies to all of your LLP withdrawals combined. So, if you have more than one loan, you cannot withdraw more than $20,000 from all of your loans combined.
How Does the LLP Work?
The LLP’s way of work is easy to understand. As you already know, you’re building up your retirement savings plan by contributing to the RRSP. Then, if you or your spouse or common-law partner wishes to return to school, you can pay for it with untaxed money from your account.
Fortunately, since you’re withdrawing money from your RRSP, which is technically borrowing, you are exempt from paying interest and income tax. However, that also means that you don’t qualify for deductions on your repayments. Furthermore, as your RRSP is a tax-advantaged account, you don’t pay tax on the money you contribute, either.
Aside from the LLP, the RRSP has a Home Buyers’ Plan that offers similar benefits to people looking to withdraw from their retirement accounts to build or buy a home. However, unlike the LLP, the Home Buyers’ Plan boasts a withdrawal limit of $35,000.
Further Reading: What is the Longevity Pension Fund?
Eligibility and Application
If you’re thinking about applying for RRSP’s Lifelong Learning Plan, there are a few requirements you need to satisfy, such as:
- You must be a Canadian resident
- You (or your partner) must be enrolled in a qualifying educational program at a designated educational institution
- You must have an RRSP
- Your repayment period for a previous LLP withdrawal has not begun
If you meet all four requirements, you’re ready to move to the next step, applying.
The first thing you’ll need to do is fill in Form RC96, Lifelong Learning Plan (LLP) – Request to Withdraw Funds From an RRSP. There are two parts to this form, one of which will be filled out by your issuer. Next, you need to send in a letter with certain information, which you can find here.
Following your approval, you can withdraw money from your RRSP account, either $10,000 in a calendar year or $20,000 in total. Finally, after you’ve withdrawn your money, you must file an income tax and benefit return by filling out a Schedule 7 to report your withdrawals.
As we briefly mentioned, the RRSP offers both a Lifelong Learning Plan and a Home Buyers’ Plan for first-time home buyers. Unfortunately, many people are oblivious to the fact that your retirement savings can help put money toward a home or education, thus facing daunting expenditures.
To illustrate, according to the RRSP, a first-time homebuyer is someone who has not resided in a home they own in the last four years prior to the withdrawal. However, the rules are different for those with disabilities.
How to Repay the Lifelong Learning Plan?
LLP repayments don’t need to be rushed, as borrowers have over a period of 10 years to pay back the money. For most people, you need to repay 10% of the total withdrawn amount every year until the balance reaches zero.
To make your repayments, you first need to contribute to your retirement account during the repayment year. Then, you need to designate it for the year by completing Schedule 7, RRSP, PRPP and SPP Unused Contributions, Transfers, and LLP or LLP Activities.
Your issuer will send you a T4RSP, Statement of RRSP Income stating the withdrawn amount. Finally, you have to file the form with your income tax and benefit return for the year.
Generally, if the LLP student meets the condition of a qualifying student for at least three months during the year, the repayment period starts in the fifth year following the first withdrawal. So, if you make your first withdrawal in 2022, you would need to start paying it back in 2027.
However, if your student status is terminated before the five years have gone by, you’ll need to start repaying your amount the second year after you stop studying.
For reference, the Home Buyers’ Plan repayment period lasts 15 years, starting two years after the first withdrawal. Here, you have to pay back 1/15 of the total amount you’ve borrowed until your balance is back to zero.
You might be interested: How to Pay Less Taxes in Canada: 10 Tax-Saving Tips
Alternatives to the Lifelong Learning Plan
If you’re not sold on the idea of taking out LLP loans, that’s okay! Not everything is suitable for everyone. Fortunately, there are still some options you can take advantage of when paying for school.
One way to pay for your education is to consider withdrawing from your RRSP early. Note that this amount of money is taxable because you are not using any plans. Therefore, by making an early withdrawal, you’d need to pay a withholding tax, pay income tax, lose out on tax-deferred compounding, and lose your contribution room.
Although this is still an option for many, it’s evident that it comes with numerous drawbacks and additional financial burdens one might not be keen on carrying.
Another alternative to the LLP in Canada is funding your education with your tax-free savings account (TFSA). By opening a high-interest savings account, you can enjoy great flexibility and withdraw money for all kinds of things, including education.
Additionally, your TFSA savings provide funds that you can access tax-free. Sounds like a viable solution to us!
Conclusion
As you can tell, Canada’s Lifelong Learning Plan is a great way to save money on your educational costs. Going back to school doesn’t have to be a daunting experience as it signifies a new page in your or your partner’s life.
Growing your mind and fulfilling your potential shouldn’t be halted by a lack of funds.
FAQ
The Lifelong Learning Plan (LLP) is a government-sponsored program in Canada that encourages and supports lifelong learning. It helps Canadians save money on education costs, making it easier for them to go back to school later in life.
LLP repayment has a maximum amount of time of 10 years. However, you can choose to pay your loans back sooner if you want.
Lifelong learning incorporates different activities, such as going back to school to get a new degree or diploma, studying for a new career, taking courses to learn new skills or improve your current ones, etc.
The short answer is yes; you can use your Registered Retirement Savings Plan funds to pay off your LLP loans. However, you will need to pay income tax on the money you withdraw. Note that you may also be charged a penalty for early withdrawal.
Yes, Canada life offers RRSPs. What’s more, you can also withdraw money from your retirement account for education or a home, i.e. a Lifelong Learning Plan or a Home Buyers’ Plan.
ABOUT AUTHOR
When Angela combined her deep-seated love for linguistics with her growing interest for finance and money management, she struck a gold mine. She’s scoured the internet far and wide for all things related to money and finances, including payments, budgeting and investing. Now she’s eager to share her knowledge and skills with the world, determined to make it a better place. In her free time, she loves to read a good book.
