Can a LIRA be transferred to an RRSP with no contribution room in Ontario?

How much can you transfer from a LIRA to an RRSP?

Katherine, Ontario residents can transfer up to 50%—and in some cases, up to 100%—of their locked-in retirement account (LIRA) to a registered retirement savings plan (RRSP), without needing any RRSP contribution room. And that’s a good thing. It provides extra flexibility with retirement income planning.

Every province has its own set of rules for unlocking money from a LIRA that arose from a provincially regulated pension in that province. There are also federal rules for federally regulated pensions. These are the common ways to qualify in Ontario for plans registered in Ontario: 

1. Up to 50% unlocking after age 55
2. Several financial hardships (up to 100%)
3. A shortened life expectancy (up to 100% if life expectancy is two years or less)
4. If possible, have your registered account fees (RRSP, RRIF, TFSA) taken from the LIF. This will draw down the LIF faster and leave more money in your TFSA and RRSP/RRIF.

RRSP contribution room is not required for LIRA

Why? In a sense, you are transferring money already contributed to an RRSP. It was your pension at the time. You’re transferring from one registered account to another, from a LIRA to an RRSP or registered retirement income fund (RRIF). It’s not considered a “contribution,” so you will not get an RRSP tax deduction for the transfer. 

When can you unlock a LIRA? 

You can unlock a LIRA and transfer up to 50% of the funds to an RRSP or RRIF anytime after age 55, by first converting your LIRA to a LIF, and then applying for the transfer. This is normally all done at the same time, but it has to be done within 60 days of converting from a LIRA to a LIF, otherwise you won’t be able to transfer to an RRSP or RRIF. You need to complete Form 5.2 – Application to withdraw or transfer up to 50% of the money transferred into a Schedule 1.1 LIF and submit it to your financial institution. 

Should you unlock your LIRA? If so, when?

Yes, moving money from your LIRA (via a LIF) to an RRSP (or RRIF) gives you additional flexibility for retirement income planning. How? With a LIF there is a maximum amount you can withdraw each year, whereas there is no maximum withdrawal threshold for an RRSP or RRIF. Keep in mind you will have to pay tax on any withdrawals. However, there may be an argument for out-of-control spenders or those unable to budget to not unlock LIRAs. Where do you fall?

For most people, the time to unlock their LIRA is when they want to start taking a regular income. This is because the LIRA funds will go to a LIF and you are required to withdraw a minimum amount from a LIF or RRIF based on your age and the balance on December 31 of the previous year. 

Depending on the size of your LIRA, you can move up to 50% to an RRSP (via a LIF) after age 55, and if the remaining amount qualifies for a small balance withdrawal, you can also transfer that amount to an RRSP (via a LIF). In this case, the full amount in your LIRA ends up in your RRSP and no minimum withdrawals are required until you convert your RRSP to a RRIF. 

How to set up a LIF and RRIF

With a LIF, there are increasing minimum required withdrawals and maximum allowable withdrawals each year as you get older. With a RRIF there is only a minimum annual withdrawal and an unlimited maximum withdrawal. 

Knowing that, for maximum flexibility, consider these general guidelines:

1. A LIRA and/or LIF provide less flexibility than an RRSP or RRIF. So, between the two, base your retirement income plan on using the LIF first. 
2. Base RRIF withdrawals on the youngest spouse’s age to reduce the minimum you have to withdraw from your RRIF. 
3. If possible, have your registered account fees (RRSP, RRIF, TFSA) taken from the LIF. This will draw down the LIF faster and leave more money in your TFSA and RRSP/RRIF.

Should you transfer from your LIRA to an RRSP or RRIF?

It depends. Do you want an income? If you do, then transfer to a RRIF and if not transfer to an RRSP. 

If you transfer to an RRIF and find later you don’t need the income, you can convert your RRIF back to an RRSP as long as it is before December 31 of the year you turn 71.

Other reasons to consider transferring to a RRIF include: 

1. RRIF income qualifies for the $2,000 pension tax credit, starting at age 65 (RRSP withdrawals do not).
2. There is no withholding tax on the minimum RRIF withdrawal allowing for flexible tax planning (tax is still payable when you file your tax return).
3. After age 65, RRIF income qualifies for pension income splitting with your spouse to minimize combined tax, while RRSP withdrawals don’t.

Final thoughts

I hope this helps, Katherine. The simple answer to your question is: Yes, in Ontario you can transfer up to 50% of your LIRA to an RRSP (via a LIF), or even 100% subject to conditions as noted above, even if you don’t have the contribution room. 

And whether it is best to transfer to an RRSP or RRIF just depends on if you want an income or not.

Allan Norman provides fee only certified financial planning services through Atlantis Financial Inc. Allan is also registered as an investment advisor with Aligned Capital Partners Inc. He can be reached at atlantisfinancial.ca or [email protected].

More from Ask MoneySense:

• Bear markets: What’s a long-term investor supposed to do right now?
• What’s the real value of a robo-advisor?
• Can I withdraw from RRSPs to pay bills?
• Are fees for your TFSA tax deductible?

About Allan Norman, MSc, CFP, CIM

With over 30 years as a financial planner, Allan is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyles, without fear of running out of money.

Linkedin Website