How to use your RRSP for lifelong learning in retirement

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By Julie Cazzin with Janet Gray

Q: I am 56 years old, own a condo and don’t have a mortgage or debt. I recently retired and am thinking of going back to school to study for my master’s degree in music therapy at a local university. It’s a subject I’m very interested in and I feel I could make a worthwhile contribution to it. What are the ins and outs of withdrawing money from my registered retirement savings plan (RRSP) under the lifelong learning plan (LLP) next year? How much can I withdraw and what are the pros and cons of using the LLP plan at my age? I have $24,000 in my chequing account to pay the entire tuition fee of $24,000, but thought this may be a good opportunity to withdraw some RRSP money in a year when my income will be low at about $45,000. I do have $45,000 in a savings account, but don’t want to touch it since I will need to replace my car in a couple of years. — Silvana

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FP Answers: Congratulations on your recent retirement and for starting your master’s in music therapy. The LLP is a great help to those who want to pursue education and use their RRSP assets to do so. The LLP allows you to withdraw up to $10,000 per calendar year, up to $20,000 total, for full-time education or training. You are able to withdraw over a four-year period and the withdrawal is free.

There are certain qualifying requirements for the LLP, such as the student must enrol on a full-time basis in a qualifying educational program at a designated educational institution. It’s important to note that once you are qualified and have withdrawn money under the LLP, you can use the funds for any purpose related to your education.

The latest year you can start repaying your LLP withdrawals is the fifth year after your first LLP withdrawal. Or you can start repaying before that if you no longer meet the qualifications under the LLP. You have 10 years to make the repayments. Of course, conditions change if a person dies, becomes a non-Canadian resident or turns 71.

You also have to designate your repayment for the year by completing Schedule 7 — RRSP, PRPP and SPP Contributions and Transfers and HBP or LLP Activities, which is included in your income tax package, and file it with your annual income tax and benefit return for the repayment year.

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In general, we know that it’s usually a good idea to always try to withdraw funds from your RRSP in lower-income years. But since there is no tax withheld or no tax owing if you repay it, this does not need to be a factor in your decision.

Silvana, I agree that the LLP is a sound idea for you. Use the LLP for the first $20,000 of your tuition and then withdraw the remaining $4,000 from your savings. Be prepared to repay $2,000 annually to your RRSP when your education program is completed. You can consider year by year whether it is necessary to repay the annual repayment amount — or to add that amount to your income if your income is low — which will be the case in the years you have an income of $45,000 or less.

You will see the LLP balance and any repayments noted on your annual notice of assessment and you can also view those documents on your CRA My Account online. In addition, you may be able to claim certain tax credits against tuition and books. Keep all tax receipts and then you and your accountant can best decide how to take advantage of these credits when the time comes for repayment.

Janet Gray is an advice-only certified financial planner at Money Coaches Canada in Ottawa.

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