LIRA - Locked-in Retirement Account
Think of a LIRA as money that comes from a pension plan. When you leave a company where you have a pension—doesn’t matter if you’re leaving by choice or if you were laid off—that money is transferred to a LIRA, which stands for Locked-In Retirement Account.
It’s similar to an RRSP but with a few important differences—for example you can’t contribute to it or withdraw money from it. Like the name would suggest, that money is locked-in there until you retire.
Just like an RRSP, a LIRA is a tax-sheltered basket that holds investments (equities, ETFs, bonds, stocks, mutual funds, etc.) and you pay income tax on withdrawals in retirement.
Once your pension is converted to a LIRA you can’t make any more contributions.
Can I take money out?
Nope. Unlike the RRSP which you can withdraw money from (although you’ll pay a hefty withholding tax, so it’s definitely not an account you should be raiding every time you want to go on vacation…) you can’t withdraw money from a LIRA. Like we said, think of that money as locked-in there—nothing in or out until you retire.
Remember, the whole purpose of a pension is to provide you with income in retirement. If you leave your employer before retirement for whatever reason, the purpose of that money stays the same. That’s why those funds are ‘locked-in’ an investment account. You can’t just withdraw the money today to buy that boat you’ve been eyeing... you’ll have to wait, sorry. But by the time you do retire compound interest will have worked its magic, and you’ll have enough for a yacht!
What happens to my LIRA when I retire?
When you retire your LIRA must be converted to a Life Income Fund (LIF) or a Locked-In Retirement Income Fund (LRIF). Or you can use the money to purchase a life annuity. Withdrawals are taxable income, just like money you take out of your RRIF.
Converting to a LIF or LRIF allows you to control the investments in your account, and withdrawals will be subject to minimum and maximum annual amounts. The minimum annual withdrawals are the same as the RRIF.