FINANCIAL MATTERS

LIRAwithdrawal rules

In the same way that an RRSP turns into a Registered Retirement Income Fund (RRIF) at the end of the year you turn 71, a LIRA can be converted into a Life Income Fund (LIF) An RRSP can be converted to a RRIF at any time before age 71, but the earliest age at which a LIRA can be converted to a LIF depends on the province you lived in at the time you left your employer. Either way, you will need to turn your LIRA into a LIF by the end of the year you turn 71.

Can a LIRAbe transferred to an RRSP?

Investments within LIRAs can only be transferred to a LIF or an annuity, so LIRAs cannot be transferred to an RRSP

What is a LIRA’s minimum withdrawal amount?

As with a RRIF, LIRA withdrawal rules state that you’ll have to withdraw a certain minimum amount from your LIF every year, which is based on your age and the value of the account. And these accounts also come with a maximum withdrawal limit.

“The reason LIFs have a maximum payment amount is to ensure you’ll have money in there for your lifetime,” says Todd “This money was once part of a workplace pension, and the government wants to make sure such funds are used properly” Retirees don’t have to convert their funds into a LIF. They have the option to transfer the money in their LIRA over to an annuity, which will provide them with fixed payments for the rest of their life.

Exceptions to the LIRArules

While your funds are supposed to be locked in, there are some exceptions Depending on the pension legislation applicable to your account, you may be able to remove money early if:

• You have a shortened life expectancy

• The account balance falls below a certain threshold

• You become a non-resident of Canada

• You can prove financial hardship

“In certain jurisdictions, when you convert your LIRA to a retirement income plan, you can transfer half of that money into an RRSP,” says Todd. Your advisor can help you understand these rules and make sure you stay compliant.

What is a LIRA’s benefit to your financial plan?

A LIRA is a good investment to have in your financial plan: it means you have additional retirement savings that you can use in your later years. But it likely won’t be enough to fund your entire retirement. “The LIRA may only represent pension benefits from a certain number of years of your working life, so people should also have an RRSP and TFSA to generate additional retirement income,” says Todd.

Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant Investors Group Financial Services Inc.

Jacob Gaudet is an Associate Consultant on the wealth advisory team Gaudet Group Private Wealth Management. He helps clients get more out of their money, so they can get more out of life. Jacob focuses on six key areas: Investment, Retirement, Mortgage Planning, Estate, Tax and Insurance Planning. With more than 60 years of combined experience, Gaudet Group Private Wealth Management is committed to making clients’ interests their top priority. Do you have questions you’d like Jacob to answer? Email him at jacob.gaudet@igpwm.ca.