RRSPs can help educate

Under the Lifelong Learning Plan (LLP), you may withdraw up to $10,000 per year from your RRSP over a four-year period, as long as the total withdrawal does not exceed $20,000.

The funds must be used to finance full-time training or post-secondary education in a qualifying education program for you, a spouse, or a common-law partner.

A qualifying education program is one that is not less than three consecutive months in duration and requires students to spend at least 10 hours on course-related “work” per week, excluding study time.

The qualifying education program also needs to be taken at a designated educational institution, the same institutions that allow a taxpayer to be eligible to claim an education credit amount on their tax return.

A designated educational institution includes most universities, colleges, and educational institutions within Canada.

If you are attending school outside of Canada, then the institution will only qualify if it is a university and the course leads to a degree. A disabled student can qualify with part-time enrolment.  

You cannot withdraw more than $20,000 each time you use the LLP.

To use the LLP again, you need to fully repay existing LLP withdrawals to your RRSP. Withdrawals are not allowed from locked-in RRSPs.  

You will be required to repay the amount withdrawn to your RRSP, without interest, in equal payments over a 10-year period. Repayments start with the earlier of the second consecutive year in which you or your spouse are not enrolled in full-time studies and 60 days after the fifth year following the first LLP withdrawal. Repayment must be made in the year or within 60 days of the end of the year.

Of course, you do not get an RRSP deduction for LLP repayments.

Any amount not repaid as required will be added to the income of the planholder for that year. If a required LLP repayment is not made, you will permanently lose that contribution room. An excess repayment made in one year will reduce the minimum amount that must be repaid in a subsequent year.

Special rules will apply if RRSP funds are withdrawn under the LLP and the educational program is not completed, if the RRSP annuitant becomes a non-resident of Canada or on the death of the annuitant.

You cannot deduct an RRSP contribution if you make the contribution to your RRSP or spousal RRSP and within 90 days of the contribution being made the funds are withdrawn under the LLP. As always, consult with your Chartered Professional Accountant and your investment advisor, because your RRSP is an important investment, and while an LLP withdrawal will save you interest personally, it will negatively affect the investment growth in the RRSP.

Be sure the Lifelong Learning Plan is right for you.

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