What is a Locked-In Retirement Account (LIRA)?
A Locked-In Retirement Account or LIRA is an account meant for those who have an employee pension plan and leave their job. You have the option of transfer your pension plan savings into a LIRA, but you will not have access to the funds until you retire, hence it is locked-in.
This is an appealing option to people who would like to strictly secure their savings for when they retire. The LIRA is also an attractive option for people who might need some assistance with keeping their money tucked away for only after retirement.
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Find out if a LIRA is right for you!
What are the benefits of having a LIRA?
A LIRA can be a great savings account for those who are determined to have a strong retirement plan.
What is the difference between a LIRA and a RRSP?
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What is the difference between a LIRA and a RRSP?
Financial Institutions we work with
We proudly work with Canada’s largest financial institutions for your retirement planning & investment needs
Financial Institutions we work with
We proudly work with Canada’s largest financial institutions for your retirement planning & investment needs
Frequently Asked Questions (FAQs) About
Locked-In Retirement Accounts (LIRA)
A LIRA is a locked-in account that will hold an employee pension plan from a former employer of yours. The funds in the account remain locked until your retirement, and must be transferred into a life income fund (LIF) to be accessed. You will rarely have access to unlock your locked-in retirement account, but it is possible in certain emergency situations.
It is honestly simple, the pension you’ve earned from a former employer is put into an account and is locked-in until you retire. When you retire you can transfer the amount in the LIRA into a life income fund (LIF) to receive your pension payments.
The minimum age that you can unlock your LIRA account is at age 71.
You can unlock up to 50% of your LIRA when you are 55 years old, or older in most provinces. You are also allowed to withdraw small amounts from your LIRA as long as it stays under a certain amount. Alternatively, in certain emergency situations you can withdraw money from your LIRA prior to retirement.
Once you turn 71 years old you can transfer your LIRA amount into a life income fund (LIF), this will then provide you payments from your pension throughout your retirement.
1. Your life expectancy has been shortened
- You may be able to unlock your locked-in assets if you become disabled or diagnosed with a critical illness that shortens your life expectancy. Your pension partner would have to accept a waiver form, and your doctor would have to write a letter stating that you are expected to live a significantly shorter life. The type of disability or illness, as well as your expected lifespan, are not required to be stated in the letter. The waiver and doctor’s letter must be submitted to the bank holding your locked-in retirement account.
2. Availability to unlock up to 50%
- If you are 50 or older, Alberta pension legislation allows individuals to unlock up to 50% of the funds in their LIRA before transferring the remainder to a LIF. A waiver form would have to be signed by your pension partner. The bank that maintains your LIRA unlocks the funds. This is a one time choice though and therefore you cannot choose to unlock more than 50% in the future, rather you have to wait until your LIRA matures.
3. Access to small amount
- The money in an LIRA or LIF is sometimes thought to be too small to provide long-term income. This small sum may be unlocked if you meet the age and maximum pensionable earnings thresholds for the year (YMPE). The Government of Canada establishes the YMPE each year. For 2022:
- If you are under the age of 65 and have less than $12,980 in any single locked-in account on the day you request a withdrawal, the account can be unlocked (less than 20 percent of the YMPE).
- If you are 65 or older and have less than $25,960 in any single locked-in account on the day you request a withdrawal, the account can be unlocked (less than 40% of the YMPE).
4. Becoming a non-resident of Canada
5. If you are in one of the five financial hardship situations listed below, you may be able to access funds in your LIRA or LIF. You apply to the bank that holds your account for the money to be released. You may apply for each of these reasons once per calendar year per account.
- Low income – In 2022, if your annual income is under $43,267, you may be able to receive up to $32,450.
- Foreclosure – If you or your pension partner received a letter threatening foreclosure on a debt secured by your primary residence. The amount unlocked can only be for the amount owed plus legal fees.
- Rent arrears eviction – If you are at risk of being evicted from your primary residence because you owe rent. The amount of unpaid rent is the most you can unlock.
- First month’s rent and security deposit – If you require the first month’s rent and security deposit on a new home.
- Medical costs and renovations – If you, your pension partner, or dependants have had or will have medical expenses not covered by a medical plan in the last and/or next 12 months, and/or you have made or will be making alterations to your main home due to your, your pension partner’s, or dependant’s illness or
There are some ways that you can access the money in your locked-in retirement account in British Columbia (B.C.). Most of these reasons would be due to emergency situations. The rules do vary for each province, but to unlock locked-in retirement account in B.C. here are the rules directly from the B.C. Financial Services Authority:
- Low income
- Requirement to pay for medical cost
- At-risk of eviction for rental arrears
- At-risk of defaulting on a mortgage
- Required to pay a deposit to obtain a new principal rental residence
There are indeed some ways that you can access the money in your locked-in retirement account. Most of these reasons would be due to emergency situations such as illness and loss of income. The rules do vary for each province, but to unlock locked-in retirement account in Ontario here are the rules directly from the Financial Services Commissions of Ontario:
- your life expectancy has been shortened to two years or less
- you are at least 55 years old and the total value of the funds in all of your locked-in accounts is less than 40% of the Year’s Maximum Pensionable Earnings (YMPE)
- amounts transferred into your locked-in account exceed federal Income Tax Act limits
- you are a non-resident of Canada and 24 months have passed since the date of your departure from Canada
The savings and investments aren’t taxed in the LIRA account but can be taxed when they are withdrawn from your LIRA, and transferred to a Life Income Fund (LIF). The tax won’t be deducted from your LIRA at once but rather you will be taxed on your scheduled LIF payments.
Yes, the funds in the locked-in retirement account can be used to invest in GICs, mutual funds, stocks and bonds. Keep in mind that you can’t put in additional funds but you can invest with the funds that are in the LIRA and add the income earned to the LIRA.
Yes, the income earned from a LIRA will be accumulated tax-free. You will only pay taxes when you withdraw the funds.
No, you do not need to make a new LIRA if you leave another job with a pension plan, what you could do is put the pension plan amount into the same LIRA. You must have this second pension plan from a job within the same province as the previous job which gave you the first pension plan.
Want to learn more about LIRAs?
Click here to read our blog post on Locked-in Retirement Accounts (LIRA)
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An overview of 5 wealth-planning steps Protect Your Wealth takes that results in a strong financial future.
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Gather and AnalyzeAt Protect Your Wealth, we will work with you to create an accurate overview of your present financial situation. Using state-of-the-art software, we will complete a thorough needs analysis to assess your present expenses and project future ones while accounting for inflation. We also perform a detailed risk assessment to help ensure that you are not taking more risk in your investments than necessary.
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Develop Your Blueprint for SuccessAfter carefully considering all aspects of your finances and identifying ways to maximize tax efficiency, we will recommend an efficient retirement savings plan that tallies with your investment goals. You will receive a personalized Investment Policy Statement that summarizes our findings and recommends appropriate risk-managed investment options.
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Strategize and Implement Your PlanAfter you approve your Investment policy statement, we will present you with a Financial Planning Priorities and Strategies document outlines your financial planning priorities and your personalized wealth-building strategies that meet both your short, and long-term financial goals. Once you review and approve your plan, it will be implemented. It is important to note that this document will change over time to ensure that it always reflects your current circumstances and complies with any changes in government policy.
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Forecast Your Financial FutureWe use a cash flow planning analysis to create a financial forecast of your future. This analysis calculates projected outcomes, which lets you consider the consequences of financial decisions before you make them and create a stronger plan for future commitments like a child’s college fund. These forecasts are reviewed every year as your situation changes.
5.
Ongoing Monitoring and ManagementFinancial planning is a continuous process. To ensure that your investment needs continue to be met, we will remain in regular contact with you throughout the year and hold a yearly review to assess progress, make adjustments for changed circumstances, and evaluate promising new strategies. These meetings may be held in our office, by phone, or via Zoom.