What is a LIRA for?

“A LIRA (locked-in retirement account) is a bit like a cocoon,” explains Mélanie Beauvais, an advisor at National Bank Private Banking 1859’s Expertise Centre. It’s used to put aside money until retirement.

With a few exceptions, you can’t withdraw money from your LIRA before you retire. It’s not really possible to add more either.

Do you need a LIRA?

You can’t get a LIRA unless you have a specific reason for doing so. You can open one if one of the following life events occurs:

1. You move jobs and decide to transfer your money from your former employer’s pension plan to a LIRA.
2. You receive money from your former spouse’s employer pension plan, during the division of assets when you divorce, for example.

Good to know

In all cases, the money must come from a pension plan, and the employer must be under provincial jurisdiction. If the pension plan is under federal jurisdiction, the appropriate vehicle is not a LIRA, but rather a locked-in RRSP.

There are some differences between the locked-in vehicles in each province and the locked-in RRSP. For example, the funds left from a pension plan under federal jurisdiction when your spouse dies are still locked in a locked-in RRSP or LIF. Although, in some provinces, the funds left from a pension plan under provincial jurisdiction will no longer be locked in for the surviving spouse. The main differences affect the accessibility and the withdrawal of the funds.

How do you withdraw money from a LIRA?

When you retire, there are three ways to withdraw money from LIRA.

One option is to turn the LIRA into a life income fund (LIF).

With a LIF, you can choose the frequency of withdrawals that suits you while respecting the minimum annual withdrawal. The money is tax-sheltered until it is withdrawn. It works like a RRIF (registered retirement income fund) but has less flexibility, because of the following characteristics:

1. There’s an upper limit to the amount you can withdraw from your LIF each year, and it varies depending on the account balance and your age, as well as a factor determined by the government. It’s impossible to predict with complete accuracy what your maximum withdrawal will be from one year to the next.
2. There is also a minimum annual withdrawal, which changes depending on your This mandatory minimum is calculated using the same method as the annual minimum withdrawal for a RRIF.
3. In the event of death, funds from a LIF are paid to the surviving spouse first.

The second option: a life annuity

You don’t have to turn your LIRA into a LIF. You could also opt for a life annuity. Like a LIF, its objective is to provide a regular income for the rest of your life.

However, there are some major differences between these two investment vehicles.

“A LIF gives you the option of choosing the types of investments you want,” explains Mélanie Beauvais. “LIFs are also more flexible in terms of the amount you can withdraw.”

Once a life annuity is established, the amount is fixed and guaranteed for life and will not change regardless of fluctuations in the stock market or interest rates.

The third option

You can also choose both of the above, by turning part of your LIRA into a LIF and part into life annuities.

No matter which option you choose, you must turn your LIRA or locked-in RRSP into a LIF or life annuity no later than December 31 of the year in which you turn 71 years old.

Can you withdraw money from your LIRA before you retire?

Yes, but only in very specific situations.

For example, if you have a serious illness that reduces your life expectancy, or if your income is very low. But in all cases, you will need to convert the LIRA into a LIF before accessing the money.

Remember that the rules vary between provinces.

Regardless of your situation, it’s always best to meet with your advisor if you have a LIRA or plan to retire in the next few years. Because everyone’s situation is unique, we’re here to answer your questions.

Published on March 9, 2021 by National Bank

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TFSA vs RRSP:

How do you choose? Or do you?

The answer is: there is no one answer for everyone. They both have their advantages, but depending on your situation, one might be better than the other. The RRSP offers greater tax benefits under the right circumstances but the fact that you have to pay income taxes when you take out money from it makes it less flexible. The TFSA may not provide as many tax benefits as the RRSP, but since taking money out of it has no tax consequences, it’s much more flexible.

Regardless of whether you choose the RRSP or TFSA (or make use of both!), one of the best things you can do is invest consistently.

So how do you choose? Take a look at our comparison chart to help understand the differences and then discuss with us how we can ensure you maximize your investment savings.

RRSP vs. TFSA?

TFSAs and RRSPs are both excellent options for long-term investing, and both offer tax advantages, but determining the best one depends on what you’re investing for. Ideally, you should spread out your savings and contribute to both.

Questions to consider:

Do you think your income will change significantly over the short, medium and long term?

Do you expect to make a major purchase in the next 5 years?

Is one of these better if you are married or have kids?

Our Best Tip:

If an RRSP is right for you, consider maximizing your RRSP contributions to get a large tax refund and put that refund into your TFSA. That way, you have more money working for you and you’ll have a mix of long-term retirement funds (RRSP) and flexible funds (TFSA).

One last reminder:

If you go the RRSP route, don’t spend your refund, and if you go the TFSA route, don’t spend your TFSA.

Whatever route you go, keep on saving.

Contact information

R Hunter Wealth Management Group

700 – 737 Yates Street Victoria, BC V8W 1L6

maureen.peters@nbc.ca         Tel.: 250-953-8415

National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX).

This information was prepared by Rob Hunter, a Senior Wealth Advisor with National Bank Financial. The particulars contained herein were obtained from sources that we believe reliable but are not guaranteed by us and may be incomplete.

The opinions expressed are based on our analysis and interpretation of these particulars and are not to be construed as solicitation or offer to buy or sell the securities mentioned herein. National Bank Financial may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive remuneration for its services. Rob Hunter, National Bank Financial and/or its officers, directors, representatives, and associates may have a position in the securities mentioned herein and may make purchases and / or sales of these securities from time to time in the open market or otherwise.

The opinions expressed herein do not necessarily reflect those of National Bank Financial. Several of the securities mentioned in this article may not be followed by National Bank Financial’s Research department.

The securities mentioned (inclusive of option strategies) in this article are not necessarily suitable to all types of investors.  Please consult your investment advisor to discuss investment risks. All prices and rates are subject to change without notice. Stocks typically fluctuate in value. Stock values can go to zero.

Selling calls against stock (Covered Writing): Shares may need to be sold at the strike price of the option at any time prior to expiration. If the calls are assigned, further opportunity for appreciation in the underlying security above the strike price is foregone.

Risk/Reward of the strategy = Strike price minus the purchase price of the underlying plus the premium received from the sale of the call. The maximum loss is the same as holding a long position less the premium received.

The investment advice given only applies to residents of the provinces of British Columbia, Alberta, Manitoba, Saskatchewan, Ontario and Quebec.

National Bank Financial is a member of the Canadian Investor Protection Fund.