RRSP withdrawal for education: How it works

20 September 2023 by National Bank
REEP retour aux études

Are you thinking about going back to school, but don’t have the necessary funds to pay for all the related costs? We’ve got good news: You can withdraw funds from your RRSP to finance your education. Here’s how it works. 

What’s the LLP, and how can you use it to go back to school? 

The Lifelong Learning Plan (LLP) lets you withdraw funds from your RRSP to go back to school, with a promise that it will be reimbursed at a later date. This means you won’t have to pay taxes on the amounts used. The LLP makes it possible to finance your studies, whether you’re in a short-term or long-term program. It can also be used for your spouse’s return to school, but it can’t be applied to your child’s education.   

You can withdraw up to $10,000 per calendar year from your RRSP. The maximum amount allotted to the LLP is $20,000. 

Good to know: Once the amount withdrawn is repaid in full, you can make another withdrawal from your LLP the following year. You’ll be able to withdraw up to $20,000 during a qualifying period. For more information, read the definition of a participation period on the Government of Canada website

What are the eligibility criteria for the LLP?

To be eligible for the LLP, you need to: 

  • Have an RRSP for at least 90 days
  • Be a full-time student (schools have different definitions of full-time and part-time studies)  
  • Be enrolled in an eligible program 
  • Be a resident of Canada 

Can your LLP be combined with Employment Insurance (EI) benefits?
If you’re unemployed and wish to acquire skills that will open new doors for you, it’s possible to combine EI with the LLP. Training programs that promote job market integration or job retention are authorized by Québec Emploi or Employment Ontario. If you’re enrolled full-time in one of these training programs, you can collect EI benefits while putting your LLP to good use.

Can part-time students benefit from the LLP?

It’s possible to qualify for the LLP if you’re a student in a part-time program, but only if you meet disability conditions. 

If you meet one of the following conditions, you can benefit from the LLP and dedicate 10 hours or less per week to your studies:  

  • A mental or physical impairment prevents you from enrolling full-time in school, and you provide a signed letter from a doctor, optometrist, speech-language pathologist, audiologist, occupational therapist, physiotherapist, or psychologist to this effect.  
  • You’re entitled to the disability amount on line 31600 of your income tax and benefit return for the year you withdraw from the LLP. 

For more information on LLP eligibility criteria for part-time students, visit the Government of Canada website

What are the terms of use for the LLP?

Some conditions apply when you choose to participate in the LLP. 

Maximum withdrawal  

You can withdraw up to $10,000 per calendar year, up to a maximum of $20,000 during your participation period. If you withdraw more than the maximum amount, the excess amount will be included in your income for the year and will therefore be taxable. Couples can withdraw up to $40,000 in total to finance a return to school for one or both. 

Good to know: The amounts withdrawn are not exclusively for costs related to your studies. A couple with a Registered Education Savings Plan (RESP) could use part of their LLP withdrawals to contribute to the RESP and therefore benefit from the (External link) Canada Education Savings Grant and the Québec Education Savings Incentive

Repayment period

Your repayment period will generally start during the second year after your first withdrawal. The latest your repayment period could start is five years after your first withdrawal. Once this period begins, you need to reimburse a minimum of 10% of the amount withdrawn per calendar year over the following ten years. You’ll find your payment terms on your federal notice of assessment. If you’re wondering how to repay your RRSP, it’s easy: You’ll have to contribute to your RRSP or pension plan during the year of repayment or within the first 60 days of the following calendar year. 

You need to meet certain conditions if you hope to qualify for the five-year repayment period. For example, you must qualify as a full-time student for at least three months. However, if you don’t meet this condition for two consecutive years, your repayment period may start during the second year of your studies. 

Good to know: Your repayment doesn’t impact the RRSP contribution limit, but it also isn’t tax-deductible. This means that as long as the conditions and repayment period of your RRSP are respected, the LLP doesn’t directly impact your retirement plan. Nonetheless, it should be remembered that RRSP returns may be affected by withdrawals made under the LLP. 

Choosing a training program

To benefit from the LLP, you need to enrol in an eligible training program offered by a designated educational institution. 

This program must be: 

  • Technical or vocational training designed to provide or increase the skills necessary to carry out an occupational activity and offered by an educational institution recognized by Employment and Social Development Canada (ESDC).  
  • At the post-secondary level, in all other cases. 

To see what qualifies as a designated educational institution, visit the government website

When choosing a program to enrol in, note that the following conditions must apply: 

  • The program must last at least three consecutive months. 
  • The program must require at least 10 hours of classes or work per week, including lectures, practical training, lab work and thesis research. 

How else can you benefit from the LLP?

If you haven’t started contributing to your RRSP, or if the amount in your account doesn’t cover the total amount you need to go back to school, you can apply for an RRSP loan or line of credit.  

How should you go about it? 

First, you’ll need to borrow a certain amount from your bank, which you’ll then contribute to an RRSP. To qualify for an income deduction, this amount must remain in your account for at least 90 days. Then, you can withdraw an amount from your RRSP under the LLP. Afterwards, you’ll have 10 years to repay the amount withdrawn. 

The amount you receive as tax-free returns can then be used to repay your RRSP loan or for any other purpose. 

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