RRSP Season Insights - # 6

Thursday, February 28, 2013   by: StaffFeature,
- Kingsdale Capital Markets
- Timothy Hutchison

RRSP Season Insights: Article 6 of 7

Locked-In Retirement Accounts (LIRA) & Registered Retirement Income Funds (RRIF)

Employees who leave a company where they had a Registered Pension Plan (RPP) are still entitled to the pension they earned while employed. Upon leaving that company, your pension will be transferred into a Locked-In Retirement Account (LIRA).

Like RRSPs, LIRAs allow you to hold eligible investments in a tax deferred account until retirement. However, the funds held in a LIRA cannot be withdrawn from the plan until retirement. Also, once a RPP has been converted to a LIRA, you cannot make additional contributions to the plan.

You still have control over your investments in a LIRA, and there are ways to maximize the growth in the account.

All retirement savings accounts in Canada (RRSPs and LIRAs) require you to take income from the plan when you reach age 71.

There are a few different options available:

Withdraw the funds and pay the tax

Purchase an annuity

Convert your RRSP to a Registered Retirement Income Fund (RRIF)

For Locked-In Retirement Accounts (LIRA) you can convert your locked-in accounts to a locked-in version of a RRIF.

Individuals typically will not want to withdraw all of their funds from their investment plan because of the tax implications.

Annuities will provide income for a set period of time, but lack the flexibility of a Registered Retirement Income Fund (RRIF).

A Registered Retirement Income Fund (RRIF) is simply an extension of an RRSP. You have worked and saved for retirement using your RRSP, and once you retire, you will need to generate retirement income.

Like RRSPs, RRIFs allow you to invest in various types of securities and you do not pay tax on the money held in your RRIF until that money is withdrawn.

However, once you convert your RRSP to a RRIF, you are no longer allowed to make additional contributions to the plan.

Once money held in your RRIF is withdrawn, you will be taxed at your current tax rate.

You must withdraw at least a minimum amount from your RRIF each year. If you are withdrawing funds from a locked-in version of a RRIF you may also face a maximum withdraw amount as well.

If you are approaching retirement, or your 71st birthday, you should prepare a retirement income strategy. There are many factors to consider when determining your asset mix and retirement income.

Next Monday we will wrap up our discussion and examine the year ahead.

Timothy Hutchison is a Financial Advisor with Kingsdale Capital Markets.
He lectures part-time at Nipissing University and is a member of the Nipissing Kiwanis Club.
He holds a BComm (Hons.) and MBA.

Kingsdale Capital Markets

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