Let's Talk: Locked In Retirement Accounts (LIRA)

This will be a quick post about Locked-In Retirement Accounts (LIRA). They are similar to RRSP and RRIF in a lot of ways but here's a breakdown.

How Does It Work?

When you work for a company that offers a pension and quit, that pension becomes a LIRA. You cannot continue to contribute towards the pension after leaving so you must transfer it at its current market value to a financial institution like your bank. This is rare as very few Canadian companies offer their employee pensions these days because of the cost. It seems most prefer to offer a group RRSP matching contribution instead. Most of the places that still offer employees pensions these days are found in the public sector with either municipal, provincial or federal governments. Important points to know about LIRAs are:

• No money can be contributed 
• No money can be withdrawn except in the case of financial hardship
• You cannot access the funds until you convert it into a Life Income Fund (LIF)
• LIFs are provincially regulated so rules differ by provinces (some rules that apply to one province may not apply to others)
• LIFs have both a minimum and maximum amount you can withdraw each year
• For most provinces, LIRA has to be converted to LIF by the end of the year you turn 71
• Investments can grow tax-deferred until you withdraw
• Upon your death, it goes to your named beneficiary after being taxed