Going back to school?

When people talk about returning to school, the Lifelong Learning Plan (LLP) is often mentioned as an easy financing solution. Upon hearing this, our team is inclined to raise a flag of caution. We prefer to discuss all available options in the context of the individual's situation.

The upside

The LLP lets you withdraw up to $10,000 a year from your RRSP to a maximum of $20,000 to finance training or post-secondary education for you or your spouse. If repayments are made to your RRSP according to a set schedule, beginning five years after the initial withdrawal, you will not pay tax on the withdrawals.

Potential downside

Sounds appealing, but there are limitations:

- there may be penalties or fees to cash investments, or you may be selling at market lows
- withdrawals may reduce the overall diversification of your portfolio, meaning increased risk
- you will lose tax-deferred growth of the funds withdrawn - consider that at an 8% compounded annual return, $10,000 grows to more than $30,000 in 15 years and tips $100,000 in 30 years*
- making repayments may hamper your ability to save for retirement and other goals
- you may end up not making repayments, meaning more tax and a smaller retirement nest egg.

If you're close to retirement or have other reliable sources of retirement income or expect to quickly repay the funds, the impact of withdrawals may be mitigated. Alternatively, if you expect to see your salary soar after the schooling, your higher earning power may offset the shortcomings.

Borrowing is another option. You could take out a student loan and qualify for a tax credit on interest paid. Or you could cash non-registered investments, or simply reduce discretionary spending to fund for your education.

In the end, the funds must come from cash flow - either today, in the near future or in retirement. For many people, cutting expenses now, when you have more flexibility than in retirement, may be a better choice than tapping into an RRSP.

If you're returning to school, we urge you to come see us. We can help you identify the optimal solution and point out all available tax credits to keep costs to a minimum.

*Source: IPC calculators

Return to Newsletter

This Report is written by Investment Planning Counsel, a fully integrated Wealth Management Company. Mutual funds available through IPC Investment Corporation and IPC Securities Corporation. Securities available through IPC Securities Corporation, a member of CIPF. Insurance products available through IPC Estate Services Inc. Mortgage broker services provided by IPC Save Inc. (ON Lic. #10227).