A Locked-In-Retirement Account is created when proceeds from an employer sponsored pension plan is transferred to an individual RRSP. This type of transfer occurs when an employee’s participation in the pension plan terminates (usually at the end of employment).
Under the current pension legislation there are specific restrictions which guide the access to this money. Much like a regular RRSP portfolio, the investor has many options for the type of investments that can be held within the LIRA. The investments continue to grow without attracting tax and just like a conventional RRSP; income must begin in the calendar year in which the investor reaches age 71.
The biggest difference between an RRSP and a LIRA is the lack of flexibility in accessing funds from the LIRA. The Federal government along with the Provincial regulators have imposed yearly maximum withdrawal amounts calculated based on a percentage held in your LIRA on December 31st each year.
For example, at age 55 the maximum allowable withdrawal amount for the year is 4.68% (PEI) of your LIRA balance. This percentage amount increases every year by a very small amount. Based on those restrictions, it is unlikely that you will live long enough to enjoy all of those retirement savings. Consider taking an income as early as age 55 based on the maximum allowable amount, your financial planner should be able to show you an illustration which will confirm this strategy. This income from your LIRA is taxable, so your advisor should discuss a strategy to offset the taxable gain by introducing an equivalent tax deduction.
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