The Lifelong Learning Plan

Once upon a time the only thing you could use an RRSP for was retirement planning. Then the Home Buyer’s Plan came along, followed by the Lifelong Learning Plan. I’m surprised more people don’t use their RRSPs to increase their earning potential by improving their skill-sets. Seems like a no-brainer. Maybe it’s just that folks don’t know how.

The Lifelong Learning Plan (LLP) gives you an interest-free loan from your RRSP, or from your spouse’s RRSP, up to $10,000 a year (to a maximum of $20,000 in total, or $40,000 in total if both members of a couple are going back to school) to finance full-time training at a qualifying school. No, you can’t use this for your kids, so don’t think of it as a substitute for an RESP. If you are a disabled student, you may qualify for part-time studies using the LLP.

To take the money out of the RRSP, you must be enrolled in a school that qualifies for the education tax credit, or have received a written offer to enroll and have enrolled by March of the following year. To qualify the program you choose must run for at least three consecutive months and you must spend at least 10 hours a week on course work.

When it comes time to payback the money you took from your RRSP, you’ll have up to 10 years, starting the fifth calendar year after your year of withdrawal, or the second year after you can no longer claim the educational tax credit for three consecutive months. These repayment rules sound complex, so here’s an easier process you can work through:

1. Is this the year of your first LLP withdrawal? If YES, no repayment is required. If NO, go to the next question.
2. Is this the fifth year after your first LLP withdrawal? If YES, you must start repaying, with a minimum of 1/10 of what you owe. If NO, go to the next question.
3. Will you be entitled to the education amount as a FT student for at least three months this year? If YES, no repayment is required. If NO, go to the next question.
4. Were you entitled to the education amount as a FT student for at least three months last year? If YES, no repayment is required. If NO, you must start repaying, with a minimum of 1/10 of what you owe.

You can, of course, repay the LLP loan as quickly as you wish. But if you’re earning a significant income and would benefit from the tax deduction a regular RRSP contribution would get you, then keeping to the 10-year repayment schedule and also regular RRSP contributions makes more sense.

You can use the LLP as many times as you want, as long as you have paid back the last loan before you try to tap your RRSP again. This makes it perfect for ongoing skills development and training.