Is your RRSP locked in?

A common error I see with individuals is understanding locked in rrsps.

Individuals with money in locked in rrsps usually find themselves waiting too long to use the money and finding out that they cannot take out what they expected to receive during retirement from the plan.

This includes LIRA, LIF or LRIF plans. If you have money in a locked-in rrsp, there are a few strategies you can use to get money out earlier and get the most money out possible over your lifetime.

Before you transfer your locked in rrsp to a LIF, LIRA or LRIF, check which one will payout the most over your lifetime. Each provincial pension plan has different rules and federal pensions are also distinct.

As early as possible, plan to take the maximum annually from the plan. This is age 55 if the funds were from a BC pension plan.

If the funds were from another province, you may take it out earlier, Alberta is age 50 for example. Once you transfer to a LIF or LRIF plan to take out the maximum available each year. Provincial pension legislation calculates a maximum amount that can be withdrawn. If the maximum is not withdrawn, it continues to be locked in. All withdrawals are included in income for the year and are subject to tax.

However if you are still working, you can withdraw the maximum from your locked in rrsp and contribute those funds into a regular rrsp, therefore not affecting any tax and unlocking funds each year. This works for anyone under age 70.

Once the money is in an rrsp, you can withdrawal any amount at anytime. This is gradually unlocking your money over time and you can do this each year.

This brings me to mistake number two. If you have a small locked in plan, you can transfer it to a regular rrsp and take it out anytime.

The definition of small plan changes and varies by province but it is targeted for plans approximately $16,400 and under. Keeping up with each provincial change is challenging but ask your sponsoring plan administrator or financial professional.

Plan to unlock as much as possible as soon as possible, and knowing how can enhance your retirement income flexibility.

Written by Grant Hicks

Grant Hicks, C.I.M., FCSI is a professional speaker, co-author and a Retirement Planning Specialist with Manulife Securities and Hicks Financial. A leader in the financial industry, Grant has been helping Vancouver Island residents plan and create their retirement lifestyles since 1989.

One Response to Is your RRSP locked in?

  1. Wendy says:

    So If I’m turning 55 this year (Oct) living in BC have a locked-in RRSP. I should change it now to a LIF, LIRA or LRIF?

    Would like to have access to these funds as soon as possible. Planning for retirement in the next couple of years.

    Find the banks don’t necessarily known enough about these pension plans.

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