Learning about Locked-In Retirement Accounts

Every industry uses a set of acronyms and the financial industry is no different.  When is comes to locked in accounts, there are LIRAs and LIFs.

What are locked-in accounts?

Locked in accounts are simply money that originates from a pension plan.  As long as you are employed by a company or organization with a pension, you money stays in that pension.  There are two kinds of pension plans – defined benefit plans and defined contribution plans.

But when you leave that company, you may have the choice to move the money into a personal plan.  Many people assume you can move pension money into a RRSP but that can only happen if it is a relatively small amount of money.

What is a LIRA?

A LIRA is a Locked-In Retirement Account and is designed for accumulation of pension money outside a pension plan.  If you do not need income from your pension funds, then a LIRA allows you to manage your pension funds personally.  A LIRA is just another type of registered account much like an RRSP.  Think of them both as ‘buckets’ of money.  The two main differences between a LIRA and an RRSP are:

  1. LIRAs hold pension money.  RRSPs hold money that you have contributed on your own.  Because Locked-In Retirement Accounts hold pension money, you cannot just contribute money into a LIRA.  The money has to be transferred in from a pension.
  2. With RRSPs, you can take money out whenever you want and there are no restrictions on how much money you can take out.  Although it may not be ideal, you can cash out all of your RRSPs at once.  With LIRAs, you are restricted on withdrawals.  Firstly, you cannot take out lump sum withdrawals out of a Locked-in Retirement Account hence why that are called ‘Locked-in’.  If you want income, you must move the money into a LIF or Life Annuity, which I will discuss later.

Other than these differences, RRSPs and LIRAs are very similar.

-    As long as the money stays in the account (or bucket), there is no tax.  As soon as money leaves the bucket, tax has to be paid
–    You can invest in many different types of investments like GICs, bonds, mutual funds, stocks, etc.

What is a LIF?

When you eventually need to move from the accumulation phase in life to the income phase, a Life Income Fund (LIF) is one of the options for income.  A LIF is used to convert LIRA money to income just like a RRIF is used to convert RRSPs to income.  Just like the LIRA has similarities to the RRSP, the LIF has a lot of similarities to the RRIF.

  • A Life Income Fund is designed to create regular income.  If we used the bucket analogy, the LIF and the RRIF are just buckets with holes in them.
  • In both cases, there is a minimum income that must come out of then plan.
  • Income is only taxed when you receive income.
  • In both the RRIF and the LIF, you can invest in many different types of investments like GICs, bonds, mutual funds, stocks, etc.

The big difference between the LIF and a RRIF is that the LIF not only has a minimum income but also a maximum income that prevents you from spending the money too quickly.

The Pension Puzzle

Pension law can be very complex because every province has its own set of rules.  To learn more about LIFs and LIRAs, I recommend The Pension Puzzle by Bruce Cohen and Brian Fitzgerald.  For more information on this book, visit their website

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Retire Happy Blog, Group Benefits Online and Advisor Think Box.

9 Responses to Learning about Locked-In Retirement Accounts

  1. If my spouse dies and has a LIRA how are the funds distributed? Do I get a contribution receipt if I ask the estate to be rolled over to me (as the beneficicalry)?

  2. I am 54 years of age and need to use some of my money. I have only 28,000 in an LIRA and how caqn I access some of this money I need at least half of it. Can you tell what I can do to make this happen. Thankyou Patricia

  3. I am in hardship. I need help to complete a LIRA to 8unlock my RRSPs. Desperate for some help. Anybody from Revenue Canada

  4. I am trying to open a LIRA while living in NZ but am having no luck as everyone I speak to tells me I need to be in Canada to do so. I have a Canadian government pension that I want to take a Transfer Value on but I need to open this account first before I can. Any suggestions? Anyone know an instituation that will do this for me while I am in NZ?

    • You will have to convert from an lira to an lif through the financial institution ie. cibc bank in canada in order to remove funds at 50% and then commence drawning the other funds in the lif on a monthly basis in Alberta, Canada the age to commence is 50 years of age.LIRA is a Lock in retirement fund and LIF is life income fund see bulletin 34 alberta finance .ca sincerely scp canada

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  6. What a great post on a type of savings account that is so rarely talked about. It’s always great for people to know about all the options they have available so they can make an informed decision and truly choose the one that’s best for them. Thanks for taking the time!

  7. I need to unlock some money from my LRA, I have unlocked some earlier this year, however I am still not well and need this money desperately. Is there anyway I can do this? I am 52 years old and university educated and highly employable.
    I received short term benefits but they are over 15 weeks and am no longer receiving anything. I plan to go back to work as soon as I am able to.

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