What Is the Lifelong Learning Plan and How Does It Work?

Paying for education can be expensive, and many Canadians seek ways to ease the financial burden. The Lifelong Learning Plan (LLP) allows individuals to withdraw money from their Registered Retirement Savings Plan (RRSP) to fund eligible education expenses without immediate tax consequences. Understanding how this program works helps those considering further education make informed financial decisions.

Eligibility Guidelines

To use the LLP, individuals must be Canadian residents with an active RRSP. Non-residents are ineligible, even if they have an RRSP, as continued residency in Canada is required for withdrawals.

Participants must be enrolled full-time in a qualifying program at a designated educational institution. The program must last at least three consecutive months and require at least 10 hours per week of coursework, including lectures, practical training, and research. Part-time students may qualify if they have a disability preventing full-time study.

Withdrawals are capped at $10,000 per calendar year, with a lifetime limit of $20,000 per participant. These funds must be used for education-related expenses, and individuals must have enough RRSP contributions available. Withdrawals for other programs, such as the Home Buyers’ Plan (HBP), may reduce the amount accessible under the LLP.

Steps to Start

Before withdrawing funds, RRSP contributions must have been in the account for at least 90 days. Withdrawals from recent contributions that do not meet this holding period may be taxed. Reviewing RRSP statements and consulting a financial institution can help confirm compliance.

The next step is completing Form RC96, “Lifelong Learning Plan (LLP) Request to Withdraw Funds from an RRSP,” and submitting it to the financial institution holding the RRSP. Errors or missing information can cause delays, so careful review is necessary. Keeping a copy for personal records is also advisable.

Once processed, funds are deposited into the individual’s account for education-related expenses. Proof of spending is not required, but maintaining records of tuition payments, textbooks, and other costs can help in case of inquiries from the Canada Revenue Agency (CRA).

Withdrawal Procedures

Withdrawals must be completed within four years of the initial request. Failing to do so may result in losing access to remaining funds.

If an individual has multiple RRSP accounts, they can choose which account to withdraw from, allowing for tax-efficient planning. Some may prefer withdrawing from accounts with lower-growth investments to preserve higher-yielding assets for retirement. RRSPs containing locked-in funds, such as those from employer pension plans, are not eligible for LLP withdrawals, so verifying account types beforehand is necessary.

While LLP withdrawals are not considered taxable income, they may affect eligibility for needs-based grants or student loans, as some provincial assistance programs factor in available financial resources. Reviewing financial aid policies can help prevent unexpected reductions in funding.

Repayment Schedule

Repayment begins in the fifth year after the first withdrawal or the second year after the student is no longer enrolled, whichever comes first.

Each year, at least one-tenth of the total amount withdrawn must be repaid to an RRSP until the full balance is restored. For example, a $20,000 withdrawal requires a minimum repayment of $2,000 annually for ten years. These repayments must be designated as LLP repayments on RRSP contribution receipts to ensure proper application.

Failing to make the required repayment results in the shortfall being added to taxable income for that year, potentially increasing overall tax liability.

Tax Considerations

LLP withdrawals are not taxed when taken, but improper repayment or exceeding program limits can lead to unexpected tax liabilities.

Since LLP withdrawals do not count as taxable income, they do not affect an individual’s tax bracket in the year they are taken. However, missed repayments are added to taxable income, which can increase taxes owed, particularly for those in higher tax brackets. Planning repayments in advance and ensuring they are correctly designated on RRSP statements can help avoid this issue.

Additionally, LLP repayments do not generate new tax deductions, as they restore previously withdrawn amounts. Individuals contributing to their RRSP while making LLP repayments should be aware of this to avoid miscalculating their tax benefits.