Plan ahead to get a tax bonus using the money you’ve saved for tuition

The Canada Revenue Agency encourages continuing your education via the Lifelong Learning Plan, or LLP. Under this program you may make a tax­-free withdrawal from your RRSPs when you are entering an educational program as a full-­time student for at least three consecutive months in a given year.

A temporary diversion of funds for a tax benefit now

What this means is that if you have money set aside for schooling, you can get a tax benefit now by temporarily stashing it in your RRSP, and still be able to use it for your tuition.

The catch

One thing to be aware of is that the money you withdraw must have been in your RRSP for at least 90 days before you make the withdrawal. If you don’t have enough funds in your RRSP for your tuition already, you’ll need to bump up your RRSP at least three months before you plan to make your LLP withdrawal.

Conditions:

  • You must have enough contribution room in your RRSP;
  • If you have made an LLP withdrawal in the past, you must have paid that one back before you can start a new one;
  • You must be enrolling in a program that issues T2202 education slips (check with your education institution; they’ll be able to tell you whether they will be issuing you a slip for your program;
  • Your program must make you a full­time student for at least three consecutive months each year (again, check with your education institution);

When it’s time to make your LLP withdrawal, be sure to tell your bank that’s what you’re doing so that they do the withdrawal properly and don’t trigger a tax bill.

You will have to repay your LLP withdrawal back into your RRSP in order to avoid tax in the future. Repayments begin two years after the end of your full­-time program or five years after your withdrawal, whichever comes first. From that point you have 10 years in which to repay the full amount.

Learn more at CRA’s website here:
http://www.cra­arc.gc.ca/tx/ndvdls/tpcs/rrsp­reer/llp­reep/menu­eng.html