What Are Your Options for Withdrawing Locked-in Funds?

February 20, 2018

 

If you have pension funds from a previous employer in a registered locked-in account, there are a number of income options that you need to consider, if you’re retiring.

Reviewing your choices upon retirement

You have several retirement income/fund options, depending on the jurisdiction of the locked-in funds.

It’s important to note that with ordinary registered retirement income fund (RRIF) there is a minimum annual amount you must withdraw but no maximum limit. The locked-in options below, however, impose a maximum cap on withdrawal.

  • Life income fund (LIF): The amount that can be withdrawn each year is subject to a minimum and maximum. It is a percentage of the account balance as of January 1 and is based on the age of the annuitant.

  • Locked-in retirement income fund (LRIF): As with a LIF, the amount that can be withdrawn each year is subject to a minimum and maximum. The minimum is also a percentage of the account balance as of January 1 and is based on the age of the annuitant. The maximum is usually the greater of the investment earnings in the previous calendar year or a calculation based on the age of the annuitant.

  • Prescribed registered retirement income fund (PRIF): The amount that can be withdrawn each year is subject to a minimum, but no maximum. A PRIF has the same rules as a RRIF.

  • Life annuity: The income amount will be based on the actuarial calculations by the insurance company. The locked-in funds will be exchanged for a guaranteed income for life for the annuitant, and possibly a reduced amount continuing on for the spouse’s lifetime as well.

With the exception of the life annuity, you retain control over how the funds are invested within locked-in RRSP/LIRA or the retirement income options.

Unlocking locked-in accounts before retirement—special provisions

Locked-in plans generally do not permit any withdrawals before retirement age, but some jurisdictions may allow some or all of the funds to be unlocked if you have a shortened life expectancy, are experiencing financial hardship or are a non-resident.

Some provinces also allow for some or all of the funds to be unlocked at retirement. It is important that these provisions are explored prior to transferring the funds into a retirement income option.

Learn more about MD's financial planning services or contact your MD Advisor to find out how we can help.

 

Previous Article
TFSAs: Harnessing the Power of Tax-Free Savings

TFSA is designed to help Canadians save money, either for the short term or long term. Learn key facts abou...

Next Article
What Happens to Your Pension When You Leave a Firm Before Retirement

If you have a registered pension plan and you leave a firm before retirement, how the funds are transferred...