Benefits of RRSP: Lifelong Learning Plan (LLP) And Home Buyer’s Plan (HBP)

May 3, 2019

Benefits of RRSP: Lifelong Learning Plan (LLP) And Home Buyer’s Plan (HBP)
“Savings, remember, is the prerequisite of investment.”
-Campbell McConnell, Economics

A Registered Retirement Savings Plan (RRSP) is a type of Canadian savings account for holding investment assets and savings. Most Canadians who contribute to RRSP are familiar with the various benefits of RRSP. Home Buyer’s Plan (HBP) and the Lifelong Learning Plan (LLP) are two of the perks of contributing to an RRSP. These perks allow you to temporarily borrow money from your RRSP account to either buy your first house or finance your education.

What is Lifelong Learning Plan (LLP)?

The Lifelong Learning Plan (LLP) enables a person to withdraw amounts from their RRSP to provide financial support for full-time education. If you contribute to an RRSP, you can also finance your spouse or common-law partner for a full-time educational program. However, it’s not possible to finance your children’s schooling.

As an RRSP contributor, you’re allowed a non-taxable temporary withdrawal of up to $20,000 in order to bear the expenses of your or your spouse’s education. However, the LLP comes with certain limitations and conditions. For example, the annual withdrawal limit is $10,000, and you have to repay the borrowed amount within 10 years. Failing to repay will have some financial consequences.

When someone obtains a personal loan from a financial institution, they have to repay the amount along with the interest. However, LLP allows you to borrow money without any interest. If you fail to deposit back the borrowed amount to your RRSP within 10 years, the amount will be counted as taxable income.

What is the Home Buyer’s Plan (HBP)?

The Home Buyer’s Plan (HBP) enables RRSP contributors to borrow money from their RRSP up to $25,000 as a loan to make a home purchase. The plan is available only to first-time home buyers. If you want to construct or buy a house for the first time, you can qualify for HBP. RRSP contributors helping a relative with a disability also qualify.

First-time home buyers in Canada are those who haven’t occupied or owned a house over a four-year period. You and your spouse or common-law partner can qualify provided the HBP requirements are met.

You can’t withdraw more than $25,000 under HBP and you have to make all withdrawals in a single calendar year. Home buyers have to deposit back the borrowed amount into their RRSP within 15 years. The 15-year period starts after the second anniversary of the withdrawal. If you haven’t deposited the required repayment amounts at the end of a given year, it turns into a taxable income.

RRSP provides numerous perks and tax benefits. Whether you want to save for retirement or reduce your tax bill, making regular contributions to RRSP is a great option. If you’re wondering whether or not RRSP is good for your financial situation or future goals, talk to a qualified financial planner.

About Kewcorp Financial

Kewcorp Financial is ready to guide you on various complex financial matters and optimize your wealth using lucrative investment and retirement strategies. If you’re in Edmonton and need objective guidance on RRSP or any other retirement savings plan, feel free to contact us!