The Top 8 Reasons to Use Your RRSP to Go Back to School

08 February 2017 by National Bank
REEP retour aux études

We are all familiar with the Home Buyers’ Plan (HBP), which enables us to withdraw funds from a RRSP to partially finance the purchase or construction of a first property. But did you know that you can also use your RRSP to finance going back to school?

Here are 8 good reasons to take advantage of the Lifelong Learning Plan (LLP).

1. Withdrawing from a RRSP for Use in the LLP Can Enrich You in the Long Run

Of course, withdrawing funds from your RRSP reduces your investments’ future growth. But if your new degree enables you to get a job with a higher salary, the investment could pay off. In fact, as your income increases thanks to a new job, your annual contribution room will increase proportionally. With the disciplined savings habits required to take advantage of this increased room, you can set more aside for your golden years!

2. The LLP Creates Possibilities for Self-Fulfillment

Did you follow in the footsteps of your parents and study management, even though you always secretly wanted to be a photographer? Going back to school could make this wish come true. Fulfilling this kind of dream might not lead to a more lucrative job, but pursuing a passion fosters a real sense of accomplishment.

3. There is No Interest on Funds Withdrawn for the LLP

To finance going back to school, you could also get a personal loan or use a line of credit. But you would have to repay these amounts (plus interest). This is not the case for funds withdrawn from a RRSP for the LLP because the plan involves lending money to yourself.

Just be careful: You do have to repay these amounts to your RRSP within 10 years after withdrawal. You can reach the 60th day of the fifth year after the first withdrawal before making the first payment.

Otherwise, unrepaid amounts count as taxable income.

4. You Can Use the LLP without a RRSP

You don’t yet have a RRSP, or it’s just getting off the ground? As is the case with the HBP, you can still reap the benefits of the LLP. First, borrow funds from your bank that you then put into a RRSP. They must remain in the account for at least 90 days before you can receive a tax refund (afterwards the borrowed funds are withdrawn for the LLP and may be used to repay the RRSP loan). You may use the amount you receive as a tax refund to finance your studies. You then have 10 years to repay the amount withdrawn through the LLP.

5. You Can Benefit from the LLP through Your Spouse’s RRSP

The LLP allows you to finance your own return to school, but it can also help your spouse. This rule means that a couple can double the maximum amount that they can withdraw from their RRSPs to benefit from the LLP.

However, this plan cannot be used for their children’s education.

6. Significant Amounts Can Be Borrowed

The LLP authorizes taxpayers to withdraw up to $10,000 per calendar year and up to $20,000 total. A couple can therefore withdraw up to $40,000 to finance going back to school.

Furthermore, withdrawals are not limited to expenditures directly related to education. A couple with children who has not used all their contribution room for a registered education savings plan (RESP) could, for example, allocate part of withdrawals made for the LLP to a RESP and thereby benefit from the Canada Education Savings Grant and the Québec Education Saving Incentive.

7. The LLP Can Help You Make a Career Change

The LLP is a great way to update or develop skills that will open new doors for you.

For instance, if you’re unemployed and wish to have the right to receive unemployment insurance benefits, you must be available during normal working hours. On the other hand to have access to the LLP, you must be a full-time student. Fortunately, there’s a solution. Training that assists returning to the workforce and maintaining employment is authorized by Emploi-Québec. By enrolling in this type of training, you can receive unemployment benefits while benefiting from the LLP!

Contact your local employment centre to find out what training programs are authorized.

8. You Can Use the LLP for Short Training Courses

No need to embark on a three-year course of study to be eligible for the LLP. Some programs only last a semester; this is true for short university level programs and attestations of collegial studies.

To benefit from the LLP, your training program must last at least three months and hold 10 class hours per week. The training must be given by a teaching institution recognized by the Ministère de l’Éducation et de l’Enseignement supérieur.

People with a physical or mental disability that prevents them from studying full-time can also benefit from the LLP.

To learn more about the LLP, read this page on the Canada Revenue Agency’s website.

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