When you leave a job where you were contributing to a workplace pension plan, you must decide what to do with the amounts you accrued in the plan. Placing them in a locked-in retirement account (LIRA) is one possible option.
What is a LIRA?
A LIRA has a single purpose: to allow your retirement savings to grow tax-free. This means that it is almost impossible to withdraw amounts from a LIRA. As its name suggests, the amounts in it are locked-in, which means they can no longer be withdrawn. In a way, you could say that the LIRA protects you from yourself, since it prevents you from using the amounts in it for anything other than retirement. But above all, it protects your money from unforeseen events.
What is the difference between a LIRA and another retirement savings vehicle, such as a registered retirement savings plan (RRSP)? While an RRSP is intended to hold your personal savings, a LIRA allows you to set aside amounts from a pension fund or another retirement savings vehicle, such as:
- a pension plan in the private sector;
- a pension plan in the municipal or university sector;
- a public-sector pension plan, such as the Government and Public Employees Retirement Plan (RREGOP);
- a voluntary retirement savings plan (VRSP).
Almost as safe as Fort Knox
There are a few rare exceptions where you can use the amounts in a LIRA for purposes other than retirement. This is the case when buying back years of service, if your pension plan allows it. However, you could not, for example, use the amounts in a LIRA to benefit from a home buyer's plan (HBP) to buy a home.
How will I have access to the amounts in my LIRA in retirement?
When it is time to break the piggy bank for retirement, you must empty it completely. But beware: you must transfer all the amounts into a product that will provide you with a steady income. Two options are available to you:
- a life income fund (LIF);
- a life annuity sold by an insurance company.
A life income fund or a life annuity means that you are guaranteed to receive a certain amount at set intervals for the rest of your life.
Watch out for scams
If someone promises you miracles by saying, "I can help you withdraw all the amounts in your LIRA without paying any taxes!", it is false. It is illegal! Furthermore, you risk losing your money. We advise you to remain extremely vigilant.
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