If you’ve ever left a job where you contributed to an employer-sponsored pension plan, you would have had to transfer those pension assets to a locked-in retirement account (LIRA) or locked-in retirement savings plan (LRSP).
These locked-in accounts must eventually be transferred to an annuity or life income fund (LIF) to convert those assets to income in your retirement years.
Get a Qtrade LIF/RLIF working for you.
What is a LIF?
- A life income fund (LIF) is a registered, tax-deferred financial product, similar to a registered retirement income fund (RRIF) [insert link to new RRIF Basics article], but with a few restrictions.
- A LIF is designed to provide retirement income from pension funds you’ve held in a LIRA or LRSP.
- The investments in your LIF continue to grow tax-free and withdrawals are treated as income for tax purposes.
- After you have opened a LIF, you can transfer cash and investments from LRSPs or LIRAs.
- Withdrawals begin the year after you open your LIF and have annual minimums and maximum payment percentages that increases every year.
- If you choose to, you can elect to withdraw up to the maximum amount.
What are the benefits of a LIF account?
LIFs tend to be the most popular option because of the independence and flexibility they allow.
- You can carry on managing the same tax-sheltered investments that you had in your LRSP/LIRA, including stocks, exchange-traded funds (ETFs), bonds, mutual funds, GICs, and cash.
- The government requires you to make a minimum annual withdrawal, which increases as you age, but you can choose to withdraw a larger amount.
What can I invest in within a LIF?
Just like RRSPs and RRIFs, you can also choose the investments that make up your LIF. You can buy and sell stocks, bonds, GICs, mutual funds, and exchange-traded funds (ETFs) in your LIF.
There are some rules that apply, however, regarding the exact nature of the investments held in a LIF. Your assets must be invested in what the Canadian Government calls “qualified investments” or there could be tax implications and penalties.
Withdrawing from a LIF
When can I withdraw from my LIF?
You can elect to withdraw more than the minimum payment from your LIF up to a maximum annual amount, but never less. If you withdraw more than the minimum, you will also pay withholding tax on the amount withdrawn above the minimum amount, based on a sliding scale of percentage amounts.
Please note: Payments from your LIF are taxable income in the year they are withdrawn.
Can I unlock my LIF and take the money out early?
Your LRSP, LIRA and ultimately, your LIF are regulated by the jurisdiction (provincial or federal) that regulates your pension.
In some cases, depending on your age and circumstances, your pension jurisdiction may allow early withdrawal of part or all of your locked-in account (LIRA, LRSP or LIF) on the basis of:
- Financial hardship
- Lowered life expectancy
- Small account balance
An RLIF gives you a one-time opportunity to withdraw up to convert 50% of your RLIF to a registered retirement savings plan (RRSP) or RRIF, subject to applicable pension legislation.
Please refer to your pension jurisdiction or read more at the Office of the Superintendent of Financial Institutions (OSFI) website.
What is a self-directed LIF?
If you are knowledgeable about markets and their various assets—and if you have had a self-directed LIRA or LRSP in the past—a self-directed LIF could make sense.
- It gives you full freedom (within the Canadian Government’s rules) to control your LIF portfolio and manage the assets within it.
- It allows you the flexibility to switch your investments at any time. It also permits you to respond quickly to any movements in the markets or changes to your personal needs.
Does Qtrade offer LIFs and RLIFs?
Yes, Qtrade Direct Investing® offers LIF and RLIF accounts for self-directed investors. You can transfer your Qtrade locked in accounts (LRSP or LIRA), or assets from another provider into a Qtrade LIF/RLIF.
Read more about RRIFs (which share many similarities with LIFs and RLIFs) in our Guide to registered retirement income funds.
Yes, you can transfer your LIF from one financial services provider to another.
LRSPs/LIRAs mature in the year you turn 71, and must be closed by the end of that year. You can:
- transfer your LRSP/LIRA funds to an annuity
- transfer your LRSP/LIRA to a LIF
- No. The only funds that can be deposited into a LIF are those transferred from a LIRA or LRSP.
- However, you can transfer your LIF account from one financial institution to another (provided that the assets being combined in the LIF are regulated by the same pension jurisdiction).
While you must close your LRSP/LIRA during the year you turn 71, you can open a LIF as soon as you reach at least early retirement age (usually at least age 55) as specified in the applicable pension legislation.
A LIF is similar to a RRIF in that it is designed to provide you with retirement income from your savings. The difference is the source of the savings. If you left a job where you contributed to a pension plan, you likely transferred those pension funds into a locked-in retirement savings plan (LRSP) or locked-in retirement account (LIRA). Like with RRSP accounts, LRSPs and LIRAs mature in the year you turn 71 and must be transferred to a LIF.
The LIF payment minimums are the same as RRIF payment minimums, but the earliest you can open a LIF is usually at least early retirement age, which is specified in the pension legislation that governed your pension plan.
A LIF operates similarly to an RLIF. The key difference is that the RLIF gives you a one-time opportunity to convert 50% of your RLIF to a registered retirement savings plan (RRSP) or RRIF, subject to applicable pension legislation. That means you could access part of your pension funds earlier in your retirement.
- The year after you open a LIF, you must start withdrawing a minimum amount, which increases slightly every year.
- You can withdraw more than the minimum, up to a maximum allowable, but never less.
- If you withdraw more than the minimum, that amount cannot be put towards your withdrawal the following year.
- You will also pay withholding tax on the amount withdrawn above the minimum amount, based on a sliding scale of percentage amounts.
- Unlike a RRIF, you cannot elect to have your minimum amounts calculated using either your own age or the age of your younger spouse.
- The percentage of the minimum withdrawal for any given year is based on the balance in your LIF at the end of the previous year.
- The minimum withdrawal amount is set by the Canadian Government (see table below).
- Before the age of 71, the minimum amount is calculated by dividing one by (90 minus your current age).
- For example, at age 55, your minimum LIF withdrawal would be calculated as follows: 1 divided by (90 – 55 = 35) = 2.86%
Age Minimum withdrawal amount
A full list of minimum withdrawal amounts can be seen at the Government of Canada website.
You can elect to withdraw more than the minimum payment, but LIFs are subject to maximum annual withdrawal limits. The maximum annual withdrawal amount is intended to ensure that you (or your survivor) maintain a retirement income until at least the age of 90. The maximum amount is determined by the provincial or federal pension jurisdiction in which your LIF is regulated.
The maximum annual LIF payment percentages can change each year and are dependent on the age of the LIF holder. You can find the maximum payment tables through your pension board or at the OSFI website.
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.