How To Unlock An Ontario Locked-In Retirement Account – LIRA, LRIF – 2018 Rules

How To Unlock An Ontario Locked-In Retirement Account – LIRA, LRIF – 2018 Rules

by Mike Holman

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:

  1. 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.
  2. 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.

Regular withdrawals

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!

Financial hardship

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:

  1. Transferred the LIRA to a LIF account.
  2. Do a 50% unlock  (actually he had to do two 25% unlocks, since the 50% unlock option was unavailable at the time).
  3. Transfer the unlocked 50% to his RRSP.
  4. Complete two annual allowable payments.  These were fairly small – about 4% of the account value each, but they helped lower the account balance.
  5. 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.

More information

Government of Canada – Please release all locked-in retirement money

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{ 15 comments… read them below or add one }

1 Fred

I have a fairly significant LIRA which I will need to convert to a LIF next year. The LIF provisions allow for “unlocking” up to 50% of the LIF and depositing/transferring the unlocked funds to a RRIF. The reason to consider this is to remove the “maximum withdrawal” provisions which are inherent in the LIF, but not an RRIF.

As I understand it, the 50% withdrawal is shown as income, but depositing to an RRIF offsets makes the transaction “tax neutral”. However, if this is indeed shown as income, would this not impact OAS Clawback calculations?

2 moe

can i withdraw from my lira account to pay revenue canada?

3 sureshbhaneja

Hi Mike Great info on unlocking of lira account. my wife has 85k in the LIRA and has RRSP as well still working and 68yr young.Can you please guide us through how to unlock LIRA funds.We would appriciate your help. Thank you very much. suresh

4 Fred Dilkes

Regarding:
“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”

I have been informed by my 2 financial institutions that this is not the case, but rather that if you transfer the 50% from a LIF to RRIF, it is strictly a “back office” transaction and there is no taxable income nor offsetting contribution receipt.

This is important for some who may have a large LIF and having it treated as taxable income could impact eligibility for other social benefits (OAS, etc.)

5 Deb

Interested in any info on unlocking at LIRA

6 Mike

Hi, I was wondering if it is possible to transfer our LRIF to which we are having a hard time maintaining a reasonable profit with an Insurance company to an account with the royal Bank of Canada to which has a more stable rate of return , we are both 77 and over the years since 205 we have seen our account dwindle we have not much left to help us reach our late 80’s or better.
Thank you ,
Mike

7 Don

Hello I am at the age of 54, one year away from being eligible to unlock my Lira. How can I unlock at my current age? Please advise

Thank You
Don

8 Mohammad

Hello,

I had recently withdrew the max on my LIF for a hardship cause (rental arrears). If I transfer the remaining LIF to a different financial institution would I be able to do another hardship withdrawl? The previous withdrawl was done this year.

Thank you.

9 Jay Parker

I am under 55 but my household income is well under 33000 a month with two kids. What is avaliable to me.

10 Christina

Hi
Yes you can apply. This would be one of the circumstances for financial hardship of debt repayment.

11 Christina

Yes you can apply for financial hardship unlocking. Fill out the form from the government website.

12 Christina

Since you are over age 55 you can withdraw or dransfer out your funds.

13 M. Langlois

Hi,
I have just turned 55 and attempting to access my locked-in assets for the one-time 50% unlocking permitted. 5 years ago, I left the federal public service. When these assets are transferred from federal locked-in assets to Ontario Restricted LIFs, are the assets considered provincial jurisdiction or remain federal? The federal government reps are telling me that once I transferred the federal funds to my Sprott acct (provincial Ontario), they no longer have any jurisdiction – however I cannot find this in writing anywhere. The Ontario administrator has coded this as federal funds even after the transfer and this is denying any access I may have to unlocking $$. Can you clarify/confirm this info?

14 Stephen Winter

I am aged 62 and will be 63 on October 26, 2018. I have an RRSP with my company Canadian Tire. I only work three days a week but have been told l cannot access any of the money until l quit my job.

I also have a LIRA from money from a former employer than went out of business many yrs ago. I would like to access these funds that are held by a financial institution and wonder if the financial institution does all the paperwork?

I also owe revenue Canada $1061 and l do not have money to pay this and wanted to use part of the LIRA to pay this money and well as use it to live on those l am still working three days a week.

Thankyou for any information you can give me.

15 John Fuller

Small Balance Transfers:
If you are at least 55 years old and the total value of all assets held in every Ontario locked -in account you own is less than $22,360 (for applications signed in 2018).

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