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What Is a Locked-In Retirement Account? (LIRA)
A Locked-In Retirement Account (LIRA) is a type of registered retirement savings account. A LIRA is designed to hold the funds you are entitled to receive as a former member of a pension fund. Typically this happens if you leave an employer prior to retirement but are entitled to receive some of their pension fund. A LIRA is also used to divide a pension in the case of a divorce (taking some of the funds from the pension and giving it to your ex-spouse). For investing a LIRA works much like a RRSP except that your are normally not permitted to make withdrawals before retirement at age 55.
LIRAs are governed by federal or provincial pension legislation so which rules apply to you depends on where you lived while contributing to the pension plan. This means there are different rules on how to unlock locked-in pension funds, so your withdrawal options will vary. In exceptional circumstances, or for very small accounts, you may be able to apply for a early withdrawal prior to retirement. Each justification is deferent and you will need to check the details of the legislation covering your account.
You cannot add money to a LIRA except from a another pension source, governed by the same legislation, so it is not used to create tax deductable retirement savings like an RRSP. If you have two pension sources with different legislation controls you will need two different LIRA accounts.
What Is a Locked-In Income Fund? (LIF)
When you retire a LIRA is converted in Locked Life Income Fund or LIF. A LIF is an investment account that is used to convert the savings you have in your LIRA into an income. Typically this means moving your investments, cash etc. from your LIRA into the LIF and starting regular withdrawals. The schedule of payments to you can be arranged to meet your needs (monthly, quarterly, annual).
If choose you can also use the LIRA (or a portion of it) to purchase a life annuity. Once you reach retirement age, the life annuity, LIF, and/or LRIF provide a pension for life.
- You are required to withdraw an annual minimum amount starting in the year which follows your 71st birthday.
- You may withdraw more the minimum but unlike a RRIF a LIF has a Maximum withdrawal (an annual cap).
- All withdrawals are considered taxable income in the calendar year of the withdrawal (earnings inside a LIF are tax-free until they are paid out).
- Within certain limits you have some control over the taxes withheld from your payments (source deductions).
- You will be provided with a T4RIF at tax time that records your taxable income for the year.
- The minimum and maximum amounts that apply for the upcoming year are calculated each December 31st.
- You can have more than one LIF.
- The rules that apply to investing inside the LIF are generally the same as those for RRSP/RRIFs.
How is the minimum and maximum income (withdrawal) determined?
Like a a RRIF a LIF has a minimum annual withdrawal. Prior to age 71 the formula for the minimum withdrawal from a LIF is : 1 / (90 - age) X Account Balance.
For example, if you are 65 years of age, 90 minus 65 is 25. One over 25 is 4%. At 65, you must take out at least 4% of the LIF balance at December 31st some time in the following calendar year. If you had $100,000 in the LIF, you would need to take out at least $4000 the following year. After age 71, the minimum income changes and no longer follows the formula 1/(90-age) formula. At that point the minimum income amount is predetermined by the government. You can see from the table below that as you get older, the minimum percentage increases.
The calculation for the LIF maximum withdrawal varies by jurisdiction and is set each November for the following year. The current rates are shown in the table below:
Age as at: Jan 1, 2020 |
Minimum withdrawal percentage (non-qualified) |
Maximum W/D for: Ontario, New Brunswick, Saskatchewan, Newfoundland, British Columbia. Alberta |
Maximum W/D percentage for: Quebec, Manitoba, Nova Scotia |
Maximum W/D percentage for: Federal/PBSA (LIF & RLIF) |
50 |
2.50% |
6.27% |
6.10% |
4.13% |
51 |
2.56% |
6.31% |
6.10% |
4.16% |
52 |
2.63% |
6.35% |
6.10% |
4.20% |
53 |
2.70% |
6.40% |
6.10% |
4.24% |
54 |
2.78% |
6.45% |
6.10% |
4.28% |
55 |
2.86% |
6.51% |
6.40% |
4.33% |
56 |
2.94% |
6.57% |
6.50% |
4.38% |
57 |
3.03% |
6.63% |
6.50% |
4.43% |
58 |
3.13% |
6.70% |
6.60% |
4.49% |
59 |
3.23% |
6.77% |
6.70% |
4.55% |
60 |
3.33% |
6.85% |
6.70% |
4.62% |
61 |
3.45% |
6.94% |
6.80% |
4.70% |
62 |
3.57% |
7.04% |
6.90% |
4.78% |
63 |
3.70% |
7.14% |
7.00% |
4.87% |
64 |
3.85% |
7.26% |
7.10% |
4.98% |
65 |
4.00% |
7.38% |
7.20% |
5.09% |
66 |
4.17% |
7.52% |
7.30% |
5.21% |
67 |
4.35% |
7.67% |
7.40% |
5.35% |
68 |
4.55% |
7.83% |
7.60% |
5.51% |
69 |
4.76% |
8.02% |
7.70% |
5.68% |
70 |
5.00% |
8.22% |
7.90% |
5.88% |
71 |
5.28% |
8.45% |
8.10% |
6.10% |
72 |
5.40% |
8.71% |
8.30% |
6.36% |
73 |
5.53% |
9.00% |
8.50% |
6.66% |
74 |
5.67% |
9.34% |
8.80% |
7.01% |
75 |
5.82% |
9.71% |
9.10% |
7.42% |
76 |
5.98% |
10.15% |
9.40% |
7.89% |
77 |
6.17% |
10.66% |
9.80% |
8.43% |
78 |
6.36% |
11.25% |
10.30% |
9.07% |
79 |
6.58% |
11.96% |
10.80% |
9.82% |
80 |
6.82% |
12.82% |
11.50% |
10.72% |
81 |
7.08% |
13.87% |
12.10% |
11.82% |
82 |
7.38% |
15.19% |
12.90% |
13.19% |
83 |
7.71% |
16.90% |
13.80% |
14.96% |
84 |
8.08% |
19.19% |
14.80% |
17.32% |
85 |
8.51% |
22.40% |
16.00% |
20.63% |
86 |
8.99% |
27.23% |
17.30% |
25.59% |
87 |
9.55% |
35.29% |
18.90% |
33.85% |
88 |
10.21% |
51.46% |
20% |
50.39% |
89 |
10.99% |
100% |
20% |
100% |
90 |
11.92% |
100% |
20% |
100% |
91 |
13.06% |
100% |
20% |
100% |
92 |
14.49% |
100% |
20% |
100% |
93 |
16.34% |
100% |
20% |
100% |
94 |
18.79% |
100% |
20% |
100% |
95 |
20% |
100% |
20% |
100% |
LINKS | CONTACT Darryl Craig, MBA Financial Advisor (604) 489-0727 #4 - 4313 Alberta Ave. Powell River, BC V8A 2M3
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