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Should you use RRSPs to go back to school?
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The Toronto Star- There are times when someone already established in a career decides to go back to school – whether it’s to further their education, or to try a completely different career path.
However, between leaving full-time employment, and saving up the money to go back to school, can be a challenge. This is where the Life Long Learning Plan (LLP) can be useful to those who have money invested in a RRSP account.
The Lifelong Learning Plan is a government program that is very similar to the Home Buyer’s Plan. But instead of taking an interest-free loan from your RRSP to help you pay for your first home, the LLP is used to help you finance your own education, or the education of a spouse or common-law partner.
Under the LLP, you can withdraw $10,000 per calendar year from your RRSP, up to a total limit of $20,000. But unlike the Home Buyer’s Plan (where you can only qualify one time, as a first-time home buyer), with the LLP, you are eligible to participate in the plan again, starting the year after you have repaid your RRSP withdrawals, and the balance you owe is back at zero.
You must meet the following criteria in order to participate in the LLP:
•You must own an RRSP
•You must be a full-time student (or a part-time student, if you meet the disability conditions)
•You must be a resident of Canada
•You must be enrolled in a qualify educational program at a designated educational institution
•You must be done participating in the LLP before the end of the year you reach the age of 71.
It should be noted that you are responsible for making sure that you qualify for the LLP. If a condition is not met while you are participating in the program, you will have to include the RRSP withdrawal as income on your tax return for the year you received the funds.
Plan rules:
•Starting the fifth year after your first LLP withdrawal, or the second year in which you have not been a full-time student for at least three months, you will need to start repaying the money back into your RRSP.
•You have up to 10 years to repay the full amount, where each year 1/10 of the total amount is due. For example, if you withdrew the entire $20,000, you would have to make payments of $2,000 each year for the next 10 years.
•RRSP contributions made less than 90 days before your withdrawal date cannot be used towards the LLP. This means you wouldn’t be able to make a last-minute contribution into your RRSP in order to take it out again for the LLP.
For more information on eligibility and rules, please visit the Canada Revenue Agency website
The money you can withdraw from the Lifelong Learning Plan is not exclusive to just tuition and school fees – it can also be used to cover living expenses – which is why the LLP might be a great way to be able to afford to return to school full-time, without having to stress about leaving full-time employment.
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