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Can you take it with you? After quitting his job, Andrew wants to know if he can transfer that employer’s pension to an RRSP.
Q. I have a new LIRA valued at $102,500 from leaving an old employer. Can I transfer this money to a LIF, then to an RRSP?
–Andrew
A. With the Great Resignation looming, many workers who decide to move on from the jobs they’re in today will be transferring pensions from their former employers into locked-in retirement accounts (LIRAs), or into locked-in Registered Retirement Savings Plans (RRSPs).
There are rules to keep in mind around these transfers. Defined contribution (DC) pension plans can be transferred from a plan provider to a LIRA. Defined benefit (DB) pension plan members who take a lump-sum commuted value payment from their pension can transfer some of their pension into a LIRA, subject to transfer limits.
A LIRA is like an RRSP, but subject to age and withdrawal restrictions. A regular RRSP can be fully withdrawn by an account holder at any time. A LIRA has limitations, since it is funded by a registered pension plan that is meant to last for life.
Withdrawals generally cannot be taken directly from a LIRA account. A LIRA can be converted to a life income fund (LIF) or similar account to begin withdrawals, or it can be used to purchase a life annuity from an insurance company that makes ongoing payments.
Locked-in plans from federally regulated pensions and pensions that are regulated in British Columbia, Alberta, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, and Newfoundland & Labrador can be transferred to a LIF. In Saskatchewan, prescribed RRIFs are used for locked-in pension funds. Locked-in plans do not exist in Prince Edward Island.
Withdrawals before a certain age may not be permitted, depending on the province; but some allow withdrawals in extraordinary situations. Examples include shortened life expectancy, financial hardship, non-residency (if you move away from that jurisdiction), and if you hold a small balance in the account.
In your case, Andrew, it sounds like you may be trying to take advantage of a partial unlocking of your LIRA to transfer some of the balance to an RRSP. Up to 50% of a federally regulated LIF can be unlocked and transferred to an RRSP for those aged 55 and older. Alberta, Manitoba, and Ontario pensions also allow a LIF to be unlocked to transfer up to 50% to a non-locked-in retirement account after age 50 in Alberta, and age 55 in Manitoba and Ontario. Starting on October 1, 2021, account holders aged 65 and older can fully unlock their Manitoba locked-in accounts. Up to 100% of a Saskatchewan pension can be transferred into a prescribed RRIF as early as age 55, the early retirement age specified in the plan where the money originated.
Generally, the unlocking process requires a LIRA to be transferred to a LIF before the transfer to a RRSP or a RRIF.
The primary benefit is that you are not subject to maximum withdrawals for a RRSP or RRIF account like you are for a LIF. Unlocking may also allow you to consolidate two separate accounts—a LIRA and a RRSP—into a single account.
Even if only 50% of your LIRA can be unlocked, doing so may help decrease your LIRA balance enough to be able to unlock the remainder under the applicable provincial small balance exception, either right away or over time.
Transfers between registered retirement accounts are generally done on a tax-deferred basis. Withdrawals from a registered retirement account are generally considered fully taxable income. As such, even if a LIRA can be unlocked and some or all of the maximum withdrawal limits of a LIF can be lifted, account holders should be cautious about the tax implications of large registered account withdrawals.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
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Wondering, in Ontario, can you transfer only part of a LIRA to a LIF to start that income stream and leave the rest in the LIRA until age 71? Say the value of your LIRA is $200K, can you transfer $50K to a LIF at age 58 to begin a (smaller) income stream if you don’t need all the regular withdrawals on the full amount.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.
Very useful discussion
What would also be helpful is a discussion on negligence versus fraud and oversights failure to address this (the former) as why have rules if they are going to be ignored or strategically sidestepped (in those terms of service set out before retail investors opening accounts e.g. the newer diy on line types.
There was an insightful article in the Globe 29 July 2021 on this in the context of advisory services. One of the two models set out by industry from retail (apart from the defined contribution and defined benefit plans.
The article in is also extremely useful. I would also do the math on taxes and withdrawals implications as such .
Can a reference to appropriate federal or Ontario legislation be provided. Thank you
It should be noted that for federally regulated pensions, it is not called a LIRA, but rather a locked-RSP. Also, conversion of a locked-RSP to LIF can happen at ANY AGE whereas provincially regulated plans (LIRA) have defined ages.
What is the difference between a Lira and locked in RSP as far as rules go? Is their a chart to see what the maximum withdrawals are for federally regulated LIRA? In a few years I will have access and would like to have an idea how much I will have access to.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.
What is the point of having a comment section if you are just going to tell us to email in questions?
If everyone emailed in their questions, the audience viewing this article does not benefit from the answer provided at the individual level, so you will get the same question over and over again through email, so you have just moved the problem to another medium and exacerbated the problem you were trying to solve.
You might know a lot about money, but very little about social media best practices.
Question:
Last year, my investment advisor converted my LIRA to RIF and then to an RRSP.
They have issued a RRSP contribution slip which for which I mistakenly claimed a deduction.
This year I received a T4RIF slip with taxable and excess amounts. what should I do at this point?
Thank you for the question. We invite you to email it to [email protected], where it will be considered for future MoneySense articles.
How to open LIRA account in banking institutions
Hi, I have a company pension plan and as of January 1st we are moving to a DB plan with the option to take the existing plan to the new one or transfer it to a LIRA to a financial instutution of my choice.
I am over 55 and would like to know if i can transfer this LIRA into a LIF and 50% regular RRSP even if i continue working with the same employer?
Thank you
Thank you for the question. We invite you to email it to [email protected], where it will be considered for a future response by one of our expert columnists.
If you convert a LIRA to a RLIF and then unlock up to 50% to be directed to an RRSP do you have to have RRSP room or is it another type of RRSP?