From the Blog Archives. Originally published Sept 2014.
If January is all about resolutions, September is all about education. And not just for the kids.
In the span of a week, I’ve had two clients in my office seeking financial advice on going back to school. Both are currently employed in well-paying and – by all accounts – “fulfilling” careers. One is seeking additional certification in his chosen field. The other is looking to follow her dreams.
Both of them need money to make it happen.
The Good News
If you have an RRSP, Revenue Canada will let you borrow up to $20,000 from it interest and tax free (no, that’s not a typo) to help fund your post-secondary aspirations. If you don’t have any money (or very little) in your own RRSP, your spouse or common law partner can borrow from theirs to help pay your back to school bills. You can also take a little from your own as well as your spouse’s (with their permission, of course…there are forms to fill out…this is still the government we’re talking about) or you could both decide to withdraw at the same time and go all “Old School“ on the system. That was such a great movie.
But I digress.
This little known gem is called the Lifelong Learning Plan (LLP) and for “mature” students, it’s the best thing since sliced bread.
It Gets Better
It really does. You can withdraw a total of $20,000 ($10,000 per calendar year) each time you use the Lifelong Learning Program. That’s right. You can use the LLP more than once in your lifetime. In fact, you can use this program as often as you’d like up to age 71, as long as you’ve paid back the last 20 grand before borrowing again. With stats suggesting the average Canadian changes careers three times in a lifetime, this means money to offset the financial burdens of those career restless among us.
What’s more, you don’t have to start the repayment process for up to five years after the initial withdrawal (subject to your on-going student status) and you have 10 years to repay it after that.
Did I mention this was interest free and is not included on your income for the years you make the withdrawal?
A “High Five Worthy” Moment
Before stopping by my office, my career changing, dream chaser client had decided to simply cash in her RRSP’s to pay for tuition, books and the other living expenses she would incur during the year she was a student again. Normally, the RRSP withdrawal on top of the income she had earned in her job from January to August would have easily put her in a 30% tax bracket. Therefore, a $20,000 withdrawal from the RRSP would have only meant $14,000 in her pocket. Using the Lifelong Learning Program, we were able to save her the $6000 in taxes and get her the full $20,000 she needed. The only stipulation was that she had to withdraw the first $10,000 in September and wait until January (i.e.; the start of a new calendar year) before withdrawing the next $10,000. Small stuff when you consider the big tax savings.
Clearly, investing in an RRSP is not just about retirement anymore.