What is a LIRA?
A locked-in retirement account (LIRA) is a registered account designed to hold and invest pension assets that you and your former employers contributed to. Investments within the LIRA grow tax-deferred – this means you won’t have to pay taxes on investment growth until you withdraw funds.
Assets within a LIRA are "locked in," which means you generally can't make any withdrawals until you reach a specific age (usually 55). The "locked in" provisions of a LIRA are meant to continue certain restrictions that applied to the assets when they were housed in your employer's pension plan. The specific "locked in" rules are determined by applicable provincial law.
As an example, let’s say you have a pension plan with a Canadian employer. If you leave your job, you’d have to decide what to do with this pension. You usually have two options in this scenario – you can:
- keep your pension assets where it is (if the plan allows it); or
- move your pension assets into a locked-in account like a LIRA.
How does a LIRA protect your pension?
Since the funds within a LIRA are locked until you’re 55, you won’t be tempted to dip into your savings early. This allows you to keep more of your money for your retirement years. Also, having a wide variety of investment options within a LIRA lets you diversify your investments so that they’re more likely to grow over time.
When can you take money out of a LIRA?
Most provinces let you unlock up to 50% of your LIRA at the age of 55. At this point, you can:
Any unlocked LIRA funds transferred into a RRSP or registered life annuity are tax-sheltered. This means you won’t be taxed when you move your funds over.
Can you unlock a LIRA early?
Yes, there are special exceptions that allow withdrawals before age 55. These exceptions apply to you if you find yourself in one of these circumstances:
- you’re facing financial hardships (such as being unable to make rent or mortgage payments or having a high amount of medical expenses),
- you’re permanently leaving Canada,
- you have a reduced life expectancy, or
- you have a small amount of assets in your LIRA.
LIRA withdrawal rules
Keep in mind that LIRA rules relating to withdrawals differ from province to province. Check your provincial government’s website to learn more about pension savings and locked-in accounts. Or, connect with an advisor for more detailed information.