Locked-In Retirement Account (LIRA) FAQ

A Locked-In Retirement Account (LIRA) is a registered retirement account funded by money transferred from a company pension. These funds are 'locked-in' and cannot be withdrawn until retirement, which is an essential aspect of effective wealth management. While the primary goal is to ensure long-term savings growth, there are specific circumstances under which funds can be accessed from a LIRA before retirement. Understanding these conditions can provide insights into income maximization and tax efficiency strategies.

To open a LIRA, you must be a Canadian resident under the age of 71 and a former member of a pension plan. LIRA accounts, which can play a key role in your wealth management strategy, are funded by money from your previous employer's pension plan. There are two circumstances when a spouse can open a LIRA: in the event of marriage breakdown or the death of the LIRA account holder. Utilizing tax efficiency strategies can further enhance the benefits of your LIRA for income maximization.

Typically, LIRA funds are locked until age 55, at which point you can start receiving payments based on government guidelines. However, in situations where life expectancy is shortened or there is financial hardship, you may access your LIRA account beyond the minimum and maximum withdrawals allowed. This flexibility can be an important aspect of wealth management, especially when considering income maximization and tax efficiency strategies.

The most common strategy for income maximization when accessing your LIRA account is to convert it into a Life Income Fund (LIF). At the time of conversion, there are specific minimum and maximum withdrawals allowed, which increase over time. Another effective approach involves unlocking your LIRA account to improve access to your funds. For guidance on this process, you can download the retirement income table or utilize our RRIF/LIF minimum payment calculator to estimate your payments while considering tax efficiency strategies that contribute to effective wealth management.

In most provinces, at age 55, you can unlock up to 50% of your LIRA account, which can be a crucial step in your wealth management strategy. Unlocking means that up to 50% of your LIRA funds can be transferred to an RRSP/RRIF account, where there are no limits on the maximum amount you can access. It's important to understand that unlocking rules vary by province. If you have already converted your LIRA to a LIF, you have 60 days to move 50% of that balance into an RRSP, which can enhance your tax efficiency strategies. 

When unlocking your LIRA, your spouse or common-law partner needs to sign an attestation allowing the unlocking to occur. 

Additionally, there are other provisions under which a LIRA can be unlocked, such as shortened life expectancy, financial hardship, small account balance, and possibly becoming a non-resident of Canada, all of which could impact your income maximization efforts.

No, you cannot make new contributions to a LIRA, nor should you add money unless it comes from another pension plan. A LIRA is specifically designed to hold transferred (locked-in) pension funds, and accessing money from a LIRA is much more restrictive. For better income maximization, you would be better off using RRSP, TFSA, or open accounts that offer more flexibility. 

Consulting with a financial advisor can assist you in making the right decision regarding which accounts to use based on your needs and goals, including effective tax efficiency strategies and overall wealth management. You can gain further knowledge about the types of accounts in the F.A.Q. section.

Upon death, the LIRA account becomes "unlocked," allowing the funds to be transferred to the surviving spouse's RRSP/RRIF account or paid out as cash. If the cash option is selected, the lump sum will be subject to income tax in the year it is received, which is an important consideration in income maximization strategies. In the event that the spouse is not eligible for the LIRA death benefit due to separation or divorce, the LIRA account then forms part of the deceased's estate and will be subject to taxes and probate, impacting overall tax efficiency strategies.

Additionally, children can also be beneficiaries of a LIRA account. If they are minors, the funds will be held in trust until they reach the age of majority. If you plan to include minor children as beneficiaries, it is advisable to consult a lawyer and your financial advisor to ensure proper wealth management.

Yes, pension or locked-in assets can be subject to family law division under the Net Family Property (NFP) calculation. Generally, the only portion of the LIRA account that may be divided is the amount the LIRA increased in value from the date of marriage. To facilitate this process, you will need your LIRA statements, a copy of the divorce papers, and a completed T2151 form. If you are experiencing a marital breakdown, it's crucial to speak with your lawyer and financial advisor, who can guide you through income maximization and tax efficiency strategies as part of your overall wealth management.

LIRAs can hold a wide range of permitted registered investments, including mutual funds, ETFs, GICs, stocks, and bonds. The fees charged by financial institutions vary based on the investments you choose. As an investor focused on income maximization and tax efficiency strategies, you would want transparency in fees and the flexibility to select the best investment options for your goals. Limiting yourself to the offerings of a single institution may not align with your best interests. It's advisable to work with an independent wealth manager to explore all possibilities. Additionally, you can compare your fees here to understand how they impact your long-term financial growth.

Making transfers requires you to contact the pension plan administrator and your financial institution. To ensure effective wealth management, you’ll need transfer forms, identification, and details of the pension benefit; the plan administrator will process the locked-in transfer per each province's rules while keeping in mind income maximization and tax efficiency strategies.