The LLP is a government-run program that is very similar to the Home Buyer's Plan. It allows you to withdraw from your RRSPs tax-free to finance your own education, or the education of a spouse or common-law partner.
Here are a few facts that you should know about the LLP:
• You are allowed to withdraw up to $10,000 per calendar year from your RRSP, up to a total limit of $20,000.
• You are eligible to participate in the LLP as many times as you want up until the end of the year you reach the age of 71. In order to be eligible again, you must have repaid your previous RRSP withdrawals under the LLP, and your balance owing must be back at zero. For example, if you decide to withdraw $5,000 out of your RRSPs under the LLP in March 2011, and pay the entire amount back into your RRSPs by March 2012, you will be eligible to participate in the LLP again starting in January 2013.
• You must be done participating in the LLP before the end of the year you reach the age of 71.
• You can participate in the LLP even if you have withdrawn amounts from your RRSP under the Home Buyers' Plan (HBP) that have not been fully repaid.
• Starting the fifth year after your first LLP withdrawal (or during the second year in which you have not been a full-time student for at least three months), you must start repaying the money back into your RRSP.
In order to be eligible for the LLP, you must meet the following criteria:
• You must be a resident of Canada.
• You must own an RRSP in your own name.
• You must be a full-time student (or a part-time student, if you meet the disability conditions).
• You must be enrolled in a qualifying educational program.
The money you borrow doesn't have to be just for paying tuition, books and school fees. It can also be used to cover living expenses, like rent, food and phone bills.
Some words of caution
While the LLP is a great solution for those looking for a way to return to school full-time without having to worry about taking out student loans, it's important to make sure you will be able to repay the money you took out. You have up to 10 years to repay the loan; each year, a minimum of 10 per cent of the total amount is due. For example, if you took out $9,000, you would have to make payments of $900 per year for 10 years.
Also note that you are responsible for making sure that you qualify for the LLP. If a required 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 more information on the Lifelong Learning Plan, visit the CRA's website.
Krystal Yee is a marketing professional living in Vancouver. She writes about personal finance at Give Me Back My Five Bucks, and the Toronto Star's Moneyville.ca. You can reach her on Twitter (@krystalatwork).