By Rick Sutherland, CLU, CFP, FDS, R.F.P
Have you ever ceased working for an employer who had a pension plan? You were probably given the opportunity to transfer your pension money into a Locked-In Retirement Account (LIRA). This Registered investment account is designed to hold the pension money for former pension plan members.
The term locked-in is used to describe these plans because the cash inside them cannot be accessed before your retirement and then normally only as an ‘Income Stream’ with restriction on the amount that can be withdrawn each year.
There are some exceptions that might allow you to access the money in your Locked-In Retirement Account before retirement.
You must follow and meet certain rules:
1. You have an illness or physical disability that is likely to shorten your life expectancy to less than two years,
2. You are at least 55 years of age and the total value of all your Ontario locked-in accounts is less than $18,880 (for 2010),
3. The amount of money that was transferred from your former pension plan into your Ontario locked-in account exceeded the Income Tax Act (Canada) limit,
4. You are a non-resident of Canada and at least 24 months have passed since your date of departure from Canada.
5. Application to the province under the Financial Hardship Provision.
In addition, the Government of Ontario and the federal government have also enacted new rules to allow the transfer of up to 50% of Locked-In accounts into a RRSP. These provisions have strict rules that must be followed. You must be 55 years of age or older and you must first convert your LIRA to a Life Income Fund (LIF). Once the LIF has been established you can make an application using certain government forms to unlock and transfer up to 50% of the value of the LIF into your RRSP.
Any withdrawal or transfer from your Ontario locked-in account may have tax consequences and may also affect your eligibility for certain government benefits. Be aware that when money is withdrawn or transferred from your LIRA to an unlocked account, the money may loose creditor protection.
Your accountant, tax preparer or financial planner can quickly determine your eligibility and assist with the procedure and forms to make these withdraws or transfer of funds.
The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.