One question which I’ve received several times recently, is how to unlock funds in an Ontario locked-in retirement account such as a LIRA, LRIF. I did this for my Dad a couple of years ago and successfully unlocked his LIRA. Ironically, he never should have had a LIRA – it must have been an RRSP contribution that got set up in error at some point.
How to unlock an Ontario locked-in retirement account
There are a number of ways to unlock your Ontario locked-in retirement account. This includes LIRA and LRIFs which are basically locked-in RRSPs and RRIFs.
If you are 55 years of age or at an age where you would have been eligible for a pension from the originating pension plan (whichever is less) then you can do the following:
- Transfer the LIRA or LRIF to a LIF (Life Income Fund) account. This LIF account will be considered a “new” LIF account. You will have to instruct your financial institution to do this step.
- You are allowed a one-time 50% unlock from the LIF account. This means you can request for a transfer of half the account value to an RRSP or RRIF account or just withdraw the money from the LIF. This unlock has to be completed within 60 days of the creation of the new LIF account. Do not delay!
When you complete the unlock, the money is treated as taxable income for that year. If you transfer to a RRSP, you will receive a contribution receipt which will offset the transfer amount.
Here are some other methods which can also be utilized:
Small account balance
If you are at least 55 years old and the total value of all money held in every Ontario locked-in account you own is less than $19,320 (for applications signed in 2011), you can apply to withdraw or transfer all the money in your Ontario locked-in account. Use this form.
If you are 55 years of age or older, you can get limited annual payments from a LIF account. Convert your LIRA or LRIF to a LIF account and then request the maximum payment allowed. This link shows the calculation of the maximum payments allowed per year. The formula is needlessly complicated and is probably irrelevant for most investors. Just ask for the max!
You are allowed to unlock money if you qualify under one of the financial hardship rules, even if you are under 55 years of age. If you think you might qualify – fill out one of the Form 6 or Form 6.1 (for low income) and follow the instructions on the form. If successful, you will receive a letter from the government which you give to your financial institution to unlock the account.
Here are the financial hardship criteria:
- Withdrawal Based on Low Income – Your expected total income from all sources before taxes for the 12 months following the date you sign the Application is less than $32,200. Use Form 6.1. Note, you can also use Form 6 for low income as well.
- Withdrawal for a Debt Against Your Principal Residence – You need money to avoid legal action or eviction from your principal residence due to unpaid mortgage payments or property taxes.
- Withdrawal for Unpaid Rent – You need money to avoid eviction from your principal residence due to unpaid rent
- Withdrawal for First and Last Months Rent – You need money to pay first and last months? rent, to rent a place to live.
- Withdrawal for Medical Expenses – You, your spouse or a dependent need money to pay for medical expenses and/or dental expenses to treat an illness or physical disability that any of you have.
- Withdrawal for Renovations to Your Principal Residence – You, your spouse or a dependent needs money to pay expenses to renovate your current or future principal residence to accommodate an illness or physical disability that any of you has.
- Withdrawal for Renovations to a Dependent’s Principal Residence – You, your spouse or a dependent need money to pay expenses to renovate that dependent’s current or future principal residence to accommodate an illness or physical disability that the dependent has.
Shortened life expectancy
If your life expectancy is two years or less and you have a signed statement from a doctor, you can apply to unlock your money. Use this form.
Non-resident of Canada for two years
If you are a non-resident of Canada and your departure from Canada took place at least 24 months ago, you can apply to withdraw all the money from your Ontario locked-in account. Use this form.
How is the province of regulation determined?
Regulation for locked-in retirement accounts is provincial, with the exception of some larger companies which are federally regulated. The province where the income was earned and pension contributions made is the province that will regulate the LIRA. The province where the investor currently lives is irrelevant. Please contact the plan administrator to verify the applicable province.
Also – the financial institution where the LIRA or LRIF is being held, should know the province of regulation.
Combine different criteria to unlock your money
In my Dad’s case, he was able to unlock his entire LIRA account by completing the following steps:
- Transferred the LIRA to a LIF account.
- Do a 50% unlock (actually he had to do two 25% unlocks, since the 50% unlock option was unavailable at the time).
- Transfer the unlocked 50% to his RRSP.
- Complete two annual allowable payments. These were fairly small – about 4% of the account value each, but they helped lower the account balance.
- Unlock the remaining funds by using the small account rule.
What is a LIRA
LIRA stands for locked-in retirement account. This is basically an RRSP account that is locked-in and you can’t make any withdrawals until the age of 55.
What is an LRIF
LRIF stands for locked-in retirement income fund. This is basically a RRIF account that is locked-in. A LIRA must be converted to a LRIF by the end of the year in which the account holder turns 71.
How is a LIRA created?
Employees who work for a company that offers a defined benefit pension plan (such as the government), will build up pension credits over time. If the employee should leave the job, they have a choice of:
- Leave their accumulated pension credits in the pension plan and collect a pro-rated pension at retirement age.
- Transfer the “commuted” value of their pension credits to a locked-in RRSP account which is called a LIRA (Locked-In Retirement Account)
If they are close to retirement age, option 2 is usually not available.
Are withdrawals from a LIF or RRSP or RRIF taxable?
Yes, they are. Any withdrawals from a LIF, RRSP or RRIF will be considered taxable income for that year. The financial institution will hold some tax back at the time of the withdrawal.
Want to learn more about RESPs? Buy The Book:
The RESP Book: The Simple Guide to Registered Education Savings Plans
Everything you need to know about RESPs.