Locked-in Retirement Accounts (LIRA) in Canada

Locked-in RRSP/LIRA

Understanding Locked-in Retirement Accounts (LIRA) in Canada

In Canada, it’s common for individuals to change jobs or leave their employers for various reasons.
When this happens, if your employer offered a pension plan—whether a Defined Benefit (DB) or Defined Contribution (DC) plan—the funds within that plan must, upon your departure, be transferred into a Locked-in RRSP (Registered Retirement Savings Plan) or a LIRA (Locked-in Retirement Account).

For simplicity, both will be referred to as LIRA throughout this article.

Unlike a regular RRSP, a LIRA is subject to stricter regulations—withdrawals and transfers are limited and must comply with specific rules.
This article will provide a comprehensive overview of:

The origin and definition of a LIRA
When to convert a LIRA and whether to withdraw up to 50%
Withdrawal rules after converting a LIRA to a LIF
A comparison between LIRA/LIF and RRIF
Practical planning tips and a decision-making framework

What Is a LIRA?

A Locked-in Retirement Account (LIRA) is typically created when:

You leave an employer with a company pension plan.
The funds from that pension plan are transferred to your personal account.

Because pension funds are meant to provide income in retirement, they cannot be withdrawn immediately. Instead, they are transferred into a LIRA, where they remain “locked-in” until retirement age.

Comparison: LIRA vs. Regular RRSP

Aspect	LIRA	RRSP
Source of funds	Transferred from employer pension plan	Personal contributions
Withdrawal flexibility	Highly restricted by pension law	Freely withdrawable (taxable)
Conversion deadline	Must convert to LIF by age 71	Must convert to RRIF by age 71
Primary purpose	Preserve and regulate pension funds	General retirement savings

The 50% Unlocking Rule — Should You Take Advantage of It?

In certain provinces (including Ontario and Alberta), when converting a LIRA into a LIF (Life Income Fund), individuals are permitted to withdraw or transfer up to 50% of the converted amount—either as cash or by transferring it into an RRSP or RRIF.

This option is generally available only once, within 60 days of the initial conversion to a LIF.

You may choose to:

Withdraw up to 50% of your LIRA/LIF (the withdrawn amount is taxable in that year), or
Transfer it to an RRSP or RRIF (allowing continued tax deferral).

Example:
If your LIRA balance is $100,000 and you decide to convert $60,000 into a LIF, you may withdraw or transfer up to $30,000 (50%).
If you choose to withdraw $20,000 as cash, the remaining $40,000 will be transferred into the LIF.

Key factors to consider before unlocking 50%:

Your short- and medium-term cash flow needs
Your current and expected tax brackets
Flexibility of investment choices in an RRSP vs. LIF
Retirement timeline and income sustainability

⚠️ Important: Once the initial 60-day window passes, the right to withdraw or transfer up to 50% is permanently forfeited.

Withdrawals After Converting to a LIF

Once you reach age 55 or older (depending on your province), you may convert your LIRA into a LIF (Life Income Fund) and begin making withdrawals.
However, LIF withdrawals are subject to both minimum and maximum annual limits set by pension legislation.

Similar to an RRSP, your LIRA must be converted to a LIF no later than December 31 of the year you turn 71.

Comparison: LIRA / LIF vs. RRIF

Feature	LIRA / LIF	RRIF
Source of funds	From employer pension (locked-in)	From personal RRSP savings
Withdrawal flexibility	Must follow provincial minimum/maximum limits	No maximum withdrawal limit
Earliest conversion age	Generally 55+	Any age
Purpose	Provide structured lifetime income	Flexible retirement income stream

Practical Planning Advice and Decision Framework

If you are under 55, LIRA funds are inaccessible, so plan to rely on other liquid assets for flexibility.
When converting to a LIF for the first time, carefully evaluate whether to exercise your 50% unlocking option.
For those considering early retirement, it’s advisable to run a tax simulation before conversion to avoid a spike in marginal tax rates from large one-time withdrawals.
Over time, consider gradual conversion from LIRA to LIF and coordinate withdrawals with other income sources to achieve tax efficiency.
Under certain conditions—such as financial hardship, serious health issues, or non-residency—you may apply for partial unlocking, provided supporting documentation is submitted.

Conclusion

Managing a LIRA involves more than simply leaving the funds untouched.
By understanding the conversion rules, withdrawal limits, and interactions with other retirement accounts like RRSPs and RRIFs, you can:

Enhance the flexibility of your retirement income,
Plan ahead to minimize tax burdens, and
Create a more controlled, tax-efficient, and sustainable retirement income strategy.