The article “The process of unlocking a LIRA account in Canada” was originally published in MoneySense on February 1, 2022. Photo by cottonbro from Pexels.

What can you do? What can’t you do? Let’s clarify some conflicting online information about locked-in retirement accounts.

Thank you for “How to get money out of locked-in retirement accounts”I have a federally regulated LIRA. I’m 55. I’m looking to unlock 50% of the balance. I came across your article while seeking some LIRA/LIF/RRSP information. 

I’m getting conflicting information regarding the process. One site indicates it is possible to transfer the one-time 50% directly from a LIRA to an RRSP. If possible, this would be preferable. This was also indicated by my discount broker but I’m having some trust issues with them.

Another indicates this is done via a LIF and also requires the entire balance of the LIRA to be transferred into the LIF. It then goes on to suggest transferring the unused 50% in the LIF into a new LIRA before one year. 

Yet another indicates it must go into a LIF and I must start drawing from the LIF each year (starting year 2) in addition to taking the 50% one-time amount out.

Additionally, I understand that emergency withdrawals are possible as well as transferring a portion to an RESP for school expenses. I’m contemplating some schooling (mine) and perhaps having a contingency plan if some emergency cash is required while attending school. —Warren

How to unlock a LIRA account

We get a lot of questions from Canadians about unlocking locked-in retirement accounts (LIRAs), Warren. So, your confusion is warranted.

In your case, you have a locked-in retirement account (LIRA) that came from a transfer out of a federally regulated pension plan. You are 55 and want to unlock some of those funds.

If a federal LIRA account holder is 55 or older, they can consider a one-time unlocking of up to 50% of the balance, but there are some steps involved first.

You need to be 55 or older during the calendar year of the request, so you can actually be 54, if your 55th birthday is later in the year.

You cannot take the withdrawal directly from the LIRA. You need to first transfer some or all of it on a tax deferred basis to a restricted life income fund (RLIF). The 50% maximum is determined based on the RLIF account value on the date the withdrawal is taken from the account. So, you would need to transfer your entire LIRA to access the maximum amount.

The unlocking portion can be taken in cash (fully taxable) or transferred to another registered retirement account, generally a registered retirement savings plan (RRSP).

RRSPs have no limits on withdrawals so can be fully withdrawn at any time. The unlocking needs to occur within 60 days of the deposit to the RLIF. So, the information you found, Warren, that says you can transfer funds from a LIRA to a RRSP is partially correct—it was just missing the RLIF step.

The remaining locked-in RLIF funds will be subject to minimum annual withdrawals in the following year based on government formulas. If you are 55 at the start of the subsequent year, for example, you must withdraw 2.86% of the balance on December 31 of the previous year. This minimum increases each year. Withdrawals are fully taxable income.

What is an RLSP?