Reviewed by Paul Thorne
A locked-in retirement account (LIRA) is a Canadian registered account designed to hold and invest pension assets that you and your former employers contributed to . Investment income within the LIRA is tax-deferred – this means you won’t have to pay income tax 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. The “locked-in” rules of a LIRA are meant to restrict your access to your pension assets and attempt to ensure you have income for your lifetime. These restrictions are similar to the ones that would’ve applied had you left the assets in your former employer’s pension plan. The specific “locked-in” rules are determined by applicable federal, provincial, and territorial pension legislation.
Let’s say you have a pension plan with your employer. When you leave your job , you’d have to decide what to do with this pension. Depending on your specific situation and terms of the plan, you may have three options:
The funds within a LIRA are locked-in until you’ve reached the minimum age depending on the legislation of your jurisdiction. This means you can’t dip into your savings early. This allows you to keep more of your money for your retirement years.
With a LIRA, you can diversify and build a portfolio by investing in stocks, mutual funds, insurance GICs, etc. A diversified portfolio can help reduce risk and may lead to a higher return.
You can hold many of the same assets in a LIRA as an RRSP, including investments like mutual funds, segregated funds, insurance GICs, and more.
A mutual fund combines the money from many investors into a pool. These pools of money are invested in stocks, bonds, or other securities. Each pool is managed by a professional investment manager.
Your principal and interest are guaranteed, safeguarding you from changes in the market. You also get the added benefits of a life insurance contract.
A segregated fund is an investment fund that combines the growth potential of a mutual fund with the estate planning benefits of a life insurance contract. You can buy a segregated fund contract that offers guarantees and some additional benefits which can help you protect your investments.
A payout annuity offers guaranteed income for life or a specified period. To help meet your retirement income needs, you might want to purchase a payout annuity to get guaranteed income from your RRSP.
ETFs are investment products that track an index or a basket of securities (generally stocks and bonds) that trade daily on an exchange. Like stocks, ETFs can be traded throughout the day on a designated exchange.
In some provinces, you may “unlock” up to 50% of your LIRA at age 55 . At this point, depending on your jurisdiction, you have a few options such as transferring your funds directly into another registered account or buying a life annuity. Remember, funds in registered accounts and life annuities are tax-sheltered. This means you won’t be taxed until you make withdrawals or receive payments.
Depending on the pension legislation applicable to your LIRA, there are special exceptions that allow withdrawals at any age. These exceptions may 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),
Please note you may need your spouse or common-law partner’s consent in order to make early LIRA withdrawals related to a special exception.
Keep in mind that LIRA rules relating to withdrawals depend on applicable pension legislation. Check the applicable government’s website to learn more about pension savings and locked-in accounts. Or, connect with an advisor for more detailed information.
No, you can’t make cash contributions to a LIRA. A LIRA is designed for holding pension assets that you and your former employer contributed to.
The difference between a locked-in RRSP and a LIRA is where the source of the funds come from:
Both a locked-in RRSP and a LIRA have similar rules and restrictions.
They’re both designed for retirement savings. A LIRA holds pension assets and keeps them locked-in until a specific age, whereas an RRSP holds money that you, your spouse or common-law partner, or your employer contributed and can[MK1] be withdrawn at anytime. Keep in mind, you’ll be taxed on any withdrawals you make from an RRSP and a LIRA. Learn more about the differences between a LIRA and an RRSP.
You don’t have to make any changes to your LIRA at age 65. You can keep your assets in a LIRA until the end of the year you turn 71. Then, you must decide whether to purchase a life annuity or convert your LIRA to a Life Income Fund (LIF).
No, you can't transfer a LIRA to an RRSP unless you meet specific unlocking conditions.
No, you can’t transfer funds directly from a LIRA to a TFSA.
Generally, the funds go to your spouse or common-law partner. Pension legislation requires your spouse or common-law partner to be your beneficiary unless they give up this right. If you don’t have a spouse or a common-law partner, then the funds in the LIRA can be paid to another beneficiary – this is provided the legislation allows you to designate a beneficiary. If you have no spouse or named beneficiary, the LIRA is paid to your estate.
Connect with an advisor for more detailed information on your specific situation
Find out how much you will need to save for retirement and if you're on track to meet your retirement savings goal.
You can get your latest RRSP receipts and tax slips online.
A life income fund (LIF) is a registered account that pays you income from your locked-in pension assets. It’s designed to provide you with income during your retirement years.
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This information is meant for educational and illustrative purposes only. Some exclusions and restrictions apply. Last updated: December 24, 2024.
