A Locked-In Retirement Account (LIRA) is designed for holding the commuted funds of a registered pension plan. This event occurs when you decide to retire or leave your employer for any other reason (resignation, layoff etc.). Pension legislation dictates that you cannot access the funds in your LIRA until age 55. It also determines a minimum and maximum dollar amount you can access each year after age 55 when it is converted to a Life Income Fund (LIF).
No, while they have some similarities, they are quite different. A LIRA has a number of restrictions that RRSPs do not have. These include a minimum age for withdrawal and more limitations with respect to deposits and income conversion options.
A form T2151 will be used to transfer your assets out of the pension plan to open a LIRA at your financial institution. After the transfer is completed, you can invest these assets in the same manner that you would invest your RRSP assets. Additionally, once a LIRA is set up, you cannot make any additional contributions. Contributions to LIRA are restricted to pension assets only along with any return on investment. The funds contributed to LIRA are from either employee defined benefit pension plan (DB) nor defined contribution pension plan (DC).
Between the ages of 55 and 71, your LIRA must be converted to one of the following (depending on your province of residence):
● Life annuity
● Life Income Fund (LIF)
● Locked-in Restricted Life Income Fund (LRIF) – Alberta, Manitoba, Newfoundland & Labrador, Ontario
In some provinces, every time money is transferred in to a new LIF from a LIRA or registered pension plan, the new LIF owner may apply to unlock up to 50% of the funds and deposit them to a RRSP or RRIF.
According to the federal government, under circumstances as followed, LIRA account holders might be able to withdraw funds before their retirement:
● You are 55 years of age or older and only have a small amount of fund in LIRA
You might unlock your LIRA and move it to RRSP if the remain balance is less than $27,450 (for 2016) which is 50% of the current Year’s Maximum Pensionable Earnings (YMPE).
Your LIRA could be unlocked if you are a non-resident of Canada for two consecutive years.
● Financial Hardship
Your LIRA could be unlocked up to 50% of the current YMPE if you are experiencing financial difficulties.
○ The maximum amount can only be reached if you have no income.
○ If your income is relatively small, a formula provided by the government will be used to calculate the potential amount that you can unlock.
○ The amount you may unlock will reach zero if your income is equal or more than 75% of the current YMPE.