How much can you transfer from a LIRA to an RRSP?
Katherine, Ontario residents can transfer up to 50%—and in some cases, up to 100%—of their locked-in retirement account (LIRA) to a registered retirement savings plan (RRSP), without needing any RRSP contribution room. And that’s a good thing. It provides extra flexibility with retirement income planning.
Every province has its own set of rules for unlocking money from a LIRA that arose from a provincially regulated pension in that province. There are also federal rules for federally regulated pensions. These are the common ways to qualify in Ontario for plans registered in Ontario:
- Up to 50% unlocking after age 55
- Several financial hardships (up to 100%)
- A shortened life expectancy (up to 100% if life expectancy is two years or less)
- If possible, have your registered account fees (RRSP, RRIF, TFSA) taken from the LIF. This will draw down the LIF faster and leave more money in your TFSA and RRSP/RRIF.
RRSP contribution room is not required for LIRA
Why? In a sense, you are transferring money already contributed to an RRSP. It was your pension at the time. You’re transferring from one registered account to another, from a LIRA to an RRSP or registered retirement income fund (RRIF). It’s not considered a “contribution,” so you will not get an RRSP tax deduction for the transfer.
When can you unlock a LIRA?
You can unlock a LIRA and transfer up to 50% of the funds to an RRSP or RRIF anytime after age 55, by first converting your LIRA to a LIF, and then applying for the transfer. This is normally all done at the same time, but it has to be done within 60 days of converting from a LIRA to a LIF, otherwise you won’t be able to transfer to an RRSP or RRIF. You need to complete Form 5.2 – Application to withdraw or transfer up to 50% of the money transferred into a Schedule 1.1 LIF and submit it to your financial institution.
Should you unlock your LIRA? If so, when?
Yes, moving money from your LIRA (via a LIF) to an RRSP (or RRIF) gives you additional flexibility for retirement income planning. How? With a LIF there is a maximum amount you can withdraw each year, whereas there is no maximum withdrawal threshold for an RRSP or RRIF. Keep in mind you will have to pay tax on any withdrawals. However, there may be an argument for out-of-control spenders or those unable to budget to not unlock LIRAs. Where do you fall?
For most people, the time to unlock their LIRA is when they want to start taking a regular income. This is because the LIRA funds will go to a LIF and you are required to withdraw a minimum amount from a LIF or RRIF based on your age and the balance on December 31 of the previous year.
Depending on the size of your LIRA, you can move up to 50% to an RRSP (via a LIF) after age 55, and if the remaining amount qualifies for a small balance withdrawal, you can also transfer that amount to an RRSP (via a LIF). In this case, the full amount in your LIRA ends up in your RRSP and no minimum withdrawals are required until you convert your RRSP to a RRIF.
How to set up a LIF and RRIF
With a LIF, there are increasing minimum required withdrawals and maximum allowable withdrawals each year as you get older. With a RRIF there is only a minimum annual withdrawal and an unlimited maximum withdrawal.