Lifelong Learning Plan

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Borrowing from your RRSP to go back to school

Withdrawing money from your Registered Retirement Savings Plan (RRSP) before you’re ready to retire can be a scary thought – and for good reason. When you take money from your RRSP to cover unexpected expenses or pay down debt, you have to pay tax on those withdrawals (anywhere from 12% to 49% depending on where you live and how much you earn).

But did you know you can use your RRSP to help cover the costs of going back to school?

How does the program work?

The Lifelong Learning Plan (LLP) is a federal government program that enables you to borrow up to $10,000 a year from your RRSP – to a maximum of $20,000 over four years – to help cover full-time education costs. The school you’re attending also has to qualify under the program. You can use this program to fund your education or your spouse’s, but not your children’s.

You’ll need to start paying back the money you borrowed from your RRSP by the fifth year after making your first withdrawal or in the second year after you stop going to school full-time, whichever comes first.

You must pay back at least 10% of what you borrowed in the first year that you make repayments, and you have up to 10 years to pay back the entire amount. You’ll be taxed on the money you withdrew unless you meet both of these conditions.

You can use the LLP multiple times until you turn 71, as long as you’ve paid back any amounts you’ve already withdrawn under the program.

Here’s an example

Let’s say that in September 2015, you borrowed $10,000 to go back to school full-time. You borrowed an additional $10,000 over the next three years (for a total of $20,000) and graduated in June 2019. Here’s what your payback schedule could look like.

LLP sample repayment schedule

REPAYMENT YEAR OPENING BALANCE MINIMUM AMOUNT TO AVOID EXTRA INCOME TAX AMOUNT REPAID CLOSING BALANCE
2020 $20,000 $2,000 $2,000 $18,000
2021 $18,000 $2,000 $3,000 $15,000
2022 $15,000 $1,875 $2,000 $13,000
2023 $13,000 $1,857 $2,000 $11,000
2024 $11,000 $1,833 $4,000 $7,000
2025 $7,000 $1,400 $1,500 $5,500
2026 $5,500 $1,375 $1,500 $4,000
2027 $4,000 $1,333 $1,500 $2,500
2028 $2,500 $1,250 $1,250 $1,250
2029 $1,250 $1,250 $1,250 $0
This example is hypothetical, for illustrative purposes only.

To learn more about this program and whether it could work for you, contact your financial advisor and visit AGF.com/RRSP.

 

The commentaries contained herein are provided as a general source of information and should not be considered personal investment or tax advice. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained here.

The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

AGF Management Limited (“AGF”), a Canadian reporting issuer, is an independent firm composed of wholly owned globally diverse asset management firms. AGF’s investment management subsidiaries include AGF Investments Inc. (“AGFI”), AGF Investments America Inc. (“AGFA”), Highstreet Asset Management Inc. (“Highstreet”), AGF Investments LLC (formerly FFCM LLC) (“AGFUS”), AGF International Advisors Company Limited (“AGFIA”), Doherty & Associates Ltd. (“Doherty”) and Cypress Capital Management Ltd. (“CCM”). AGFI, Highstreet, Doherty and Cypress are registered as portfolio managers across various Canadian securities commissions, in addition to other Canadian registrations. AGFA and AGFUS are U.S. registered investment advisers. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF investment management subsidiaries manage a variety of mandates composed of equity, fixed income and balanced assets.

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RO 1988826
August 22, 2019
 

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