When you look at a list of registered accounts when setting up a new account at a discount brokerage you’ll see a long list of acronyms, including RRSP, RRIF, TFSA, RESP, LIF and LIRA. What exactly is a Locked In Retirement Account or LIRA?
What Is a LIRA and What Investments Can I Hold In It?
A LIRA is a type of pension investment account. It’s like a RRSP.
Your LIRA can be invested in
- a daily interest cash account,
- GICs,
- mutual funds,
- ETFs,
- stocks,
- bonds,
- and other approved investments.
You may get to choose what your LIRA is invested in, or you may only be able to choose from a list of approved investments. Usually you are in control of your investment choices.
How Does Someone Get a LIRA?
One common way to get a LIRA is to leave a job that had a defined benefit pension plan. When you leave, you may be given the option to open a LIRA with an amount of money set by your employer to replace the defined benefit pension you would otherwise have received from the employer when you reached retirement age. The money in the LIRA might be entirely from your employer’s contributions to your pension, entirely from your contributions to your pension, or from a combination of both.
Another common way to get a LIRA is to retire from a company where you had a defined contribution pension plan. Often upon retirement, the funds will be transferred into a LIRA.
You will have to help set up the LIRA at a financial institution like a bank and you will have to sign papers agreeing to the terms of the LIRA before any funds will be transferred into the LIRA.
The financial institution will administer the LIRA according to the terms and rules set for LIRAs in the appropriate jurisdiction. For example, you might agree to a LIRA governed by the terms and rules set for LIRAs in the province of Alberta, or you might agree to a LIRA governed by the rules set by the Canadian federal government.
The governing jurisdiction stays with the LIRA even if you move. For example, you might agree to a LIRA governed by the rules in Alberta. Then, even if you move to Newfoundland and transfer the LIRA to a credit union in Newfoundland, you will still have to follow the Alberta LIRA rules.
The Rules for LIRAs Differ Depending on Which Government Controls the Plan
It’s important to know what government sets the rules that control your LIRA. The rules controlling the locked in retirement account can vary significantly from province to province. There are also some LIRAs that must follow rules set by the federal government.
To make it worse, the rules change periodically. When I first got my LIRA there was no way to get at the cash, even to move it to another RRSP, until age 60. Now, I can move some of the cash at age 50 providing the LIRA is only a certain size or smaller.
How Do I Know Which Government Controls my LIRA?
When you sign off on your severance package when you end your employment you will be given some papers about your LIRA. One of them should tell you which province, territory or government is controlling your plan.
Don’t assume you know which government is in control. You may be working in, say, Ontario when you finish employment with that business. Your LIRA, however, might be controlled by another province if your employer has its head office in another place like Alberta. Or your business might fall under Federal jurisdiction, like an airline, and your LIRA might be controlled by the Federal government. The only way to know for sure is to check the details about your personal locked-in retirement account.
Can I Add New Contributions to my LIRA?
Generally, no.
There are some quirks where you can sometimes combine 2 or more LIRAs that are governed by the same jurisdiction.
This is one of the problems with small LIRAs. Because you cannot contribute additional funds it may make certain investing options, such as certain types of self-directed investing, prohibitively expensive.
Can Creditors Seize My LIRA?
Generally, no. In most circumstances, creditors can not get at the assets in your LIRA to pay your debts. Once you start receiving income from your LIRA in retirement, however, they can seize that income.
Can I Use My LIRA as Collateral for a Loan?
No. Because creditors cannot seize your LIRA assets if you default on your loan, they will not accept a LIRA as collateral for a loan.
Related Reading
- Why Can’t I Get My Money Out of My LIRA?
- Information on Locked-In Retirement Accounts (LIRAs) in Manitoba
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Do you have a LIRA or LIRAs? Were they set up in lieu of defined benefit pensions or for some other reason? Please share your experiences with a comment.