What is a LIRA for?
“A LIRA (locked-in retirement account) is a bit like a cocoon,” explains Mélanie Beauvais, an advisor at National Bank Private Banking 1859’s Expertise Centre. It’s used to put aside money until retirement.
With a few exceptions, you can’t withdraw money from your LIRA before you retire. It’s not really possible to add more either.
Do you need a LIRA?
You can’t get a LIRA unless you have a specific reason for doing so. You can open one if one of the following life events occurs:
- You move jobs and decide to transfer your money from your former
employer’s pension plan to a LIRA.
- You receive money from your former spouse’s employer pension plan,
during the division of assets when you divorce, for example.
Good to know
In all cases, the money must come from a pension plan, and the employer must be under provincial jurisdiction. If the pension plan is under federal jurisdiction, the appropriate vehicle is not a LIRA, but rather a locked-in RRSP.
There are some differences between the locked-in vehicles in each province and the locked-in RRSP. For example, the funds left from a pension plan under federal jurisdiction when your spouse dies are still locked in a locked-in RRSP or LIF. Although, in some provinces, the funds left from a pension plan under provincial jurisdiction will no longer be locked in for the surviving spouse. The main differences affect the accessibility and the withdrawal of the funds.
How do you withdraw money from a LIRA?
When you retire, there are three ways to withdraw money from LIRA.
One option is to convert the LIRA into a life income fund (LIF).
A LIF, allows you to choose the withdrawal frequency that best suits your needs while adhering to the minimum annual withdrawal requirement. The money remains tax-sheltered until withdrawn. A LIF functions similarly to a Registered Retirement Income Fund (RRIF), but offers less flexibility due to the following characteristics:
- There is an upper limit to the amount you can withdraw from your
LIF each year. This limit depends on your account balance, age and a
factor determined by the government. Because the calculation depends
on these variables, it is impossible to predict your maximum
withdrawal with complete accuracy from year to year.
- As of January 1st, 2025, if you live in Quebec and are aged 55 of
older at the time of the application, you will be able to withdraw
the amount of your choice. There will be no maximum withdrawal
limit.
- There is also a minimum annual withdrawal, which varies based on
your age. This mandatory minimum is calculated using the same
method as the annual minimum withdrawal for a RRIF.
- In the event of death, funds in a LIF are transferred first to the surviving spouse.
The second option: a life annuity
You don’t have to turn your LIRA into a LIF. You could also opt for a life annuity. Like a LIF, its objective is to provide a regular income for the rest of your life.
However, there are some major differences between these two investment vehicles.
“A LIF gives you the option of choosing the types of investments you want,” explains Mélanie Beauvais. “LIFs are also more flexible in terms of the amount you can withdraw.”
Once a life annuity is established, the amount is fixed and guaranteed for life and will not change regardless of fluctuations in the stock market or interest rates.
The third option
You can also choose both of the above, by turning part of your LIRA into a LIF and part into life annuities.
No matter which option you choose, you must turn your LIRA or locked-in RRSP into a LIF or life annuity no later than December 31 of the year in which you turn 71 years old.
Can you withdraw money from your LIRA before you retire?
Yes, but only in very specific situations.
For example, if you have a serious illness that reduces your life expectancy, or if your income is very low. But in all cases, you will need to convert the LIRA into a LIF before accessing the money. Remember that the rules vary between provinces.