Pension and Locked In Account Solutions

Let us walk you through your options and show you how to turn your package into retirement income.

Severance Packages:

  • If a member is receiving a severance package, it may be possible to receive those funds without any tax taken at source if the employee has room to deposit directly into their RRSP’s.  The notice of assessment will show available room.

Value: If the employee is able to deposit directly to their RRSP’s, they are better able to control the amount that is withdrawn and therefore the amount of tax being paid.  If the employee goes back to school, they can use the funds under the lifelong learning plan and therefore no tax is paid unless the amounts withdrawn are not repaid into the RRSP.

Further information regarding the lifelong learning plan and copies of schedule 7 for reference can be found at www.cra-arc.gc.ca

Pensions

Pensions can be registered provincially or federally and some may actually not be a pension but a group RRSP.  When a worker is permanently laid off, they may have a choice to leave their pension with the company or transfer it out.  It is generally to their advantage to transfer it out as if they should pass away; the funds are 100% transferable to their spouse, where a pension would give a reduced payment.  When a pension is transferred out, it must be transferred to a locked in RRSP (LIRA) except in the case of group RRSP’s.  Once the owner of the LIRA turns 55, they have the option of transferring the LIRA to a Life Income Fund (LIF) or possibly transferring it to a RRSP, depending on the registration and amount of the LIRA/LIF.

Ontario LIRA/LIF’s

Amounts can be withdrawn for financial hardships; this must be applied for and has very strict guidelines.  There is a nominal fee charged for this.

  • When the owner of a locked-in account is over the age of 55 and has less than 40% of the years pensionable earnings in all of his or her locked-in accounts, the owner may transfer the entire amount directly to a his or her own RRSP or a RRIF rather than receiving it in a lump sum.
  • Owners of a New LIF will have the time-limited option of withdrawing or transferring to an RRSP or RRIF an amount up to 50% of the total market value of the money transferred into the New LIF.
  • The allowable withdrawal amount is also affected by the investor’s age. The older the investor, the more he or she can take out. The allowable withdrawal is calculated as a percentage of the account balance on Jan. 1 each year. The maximum withdrawal is around 7% per year.
  • When the owner of a locked-in account dies, his or her surviving spouse will be able to transfer the survivor benefit directly to his or her own RRSP or RRIF where permitted by the federal Income Tax Act.

Further information regarding Ontario LIRA’s/LIF’s along with LIF annual payment schedules can be found on the website for Financial Services Commission of Ontario at www.fsco.gov.on.ca