Today we’re answering the age-old question, can I take money out of my LIRA or my LIF?
First off, what do these acronyms mean?
A LIRA is a Locked-in Retirement Account and a LIF is a Life Income Fund.
Think of a LIRA the same idea as a RRSP (Registered Retirement Savings Plan) but it has additional restrictions under the applicable pension legislation.
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These two types of accounts are generated after you retire from work or you left your employer, they will generally offer your pension in a lump sum of dollars.
You would then transfer that money out and it will become a LIRA and remain tax sheltered.
Hypothetically, let’s say you’re a 35-year-old and you just left employment after 10 years, and you had accumulated pension of $50,000.
As those are pension dollars, they would need to be transferred to a LIRA and remain untouched until retirement. Eventually you will get to a point where you want to unlock those funds and access them for retirement income, thus leading your LIRA to get converted to a LIF.
Now once you have your funds in a Life Income Fund, it functions similar to a RRIF (Registered Retirement Income Fund) that has a minimal annual payment.
However this type of account also has a maximum amount that can be withdrawn annually.
After all, the government wants your pension money to last for your lifetime.
Essentially the income stream provides you with “Pension Withdrawals” to supplement your lifestyle needs. Every pension legislation is slightly different in what they allow or don’t allow in accessing the funds, so this varies by province and if the pension is a federal LIRA.
One such exception which applies on some pensions is the “Financial Hardship Unlocking” privilege.
If you’re able to prove to the government that you’re undergoing a rather tough patch in your life, you will be able to unlock your LIF for that reason (subject to specific qualifications).
Another exception to the rules is the “Small Balance Unlocking”.
Hypothetically again, let’s say there’s a small amount in your LIRA or LIF and If it meets the specified calculation, then you can move it out of there (LIRA Unlocking) and into an RRSP account.
One of the last exceptions is as a non-resident, you’re no longer living in Canada and you’ve been away for more than two years.
You can then apply for “Unlocking a LIRA in Canada”, to get that money unlocked or move to an equivalent account out of country and you can generally get it unlocked that way.
One fantastic exception is a one-time only exception, “50% Unlocking”, where you can transfer up to half of your locked-in dollars to what’s called the Prescribed RRIF (P-RRIF).
This P-RRIF allows you to access the unlocked 50% of your pension, with no maximum restrictions on withdrawals.
The other half would remain in a LIF, under the normal restrictions.
You of course could start drawing it down and access as much as you want. It gives you a ton of additional flexibility in your retirement income. Now just be aware that the more you take out, the more income that is taxable.
At the Tetrault Wealth Advisory Group, we have a dedicated Wealth & Estate Planning Specialist, who works with you to determine the best way to draw down your retirement funds and control the amount of taxes you pay.
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We will work with you to navigate the world of LIRAs, LIFS and the various potential pension legislations they may fall under, and ensure we recommend the best strategies for your needs!
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