A Registered Retirement Income Fund (RRIF) and a Locked-in Retirement Account (LIRA) serve different stages and sources of retirement money. A RRIF is an income account that must begin making minimum payments, while a LIRA is a locked-in savings account that generally holds money transferred from an employer pension plan. The easiest way to think about the difference is that a LIRA resembles a locked-in RRSP, not a locked-in RRIF. Pension legislation restricts access to LIRA money because it originated as pension benefits, while a regular RRIF generally lets you withdraw any amount above its required annual minimum.
- RRIF vs. LIRA at a Glance
- A LIRA Holds Locked-In Pension Money
- A RRIF Is Designed to Pay Retirement Income
- RRIFs and LIRAs Have Very Different Withdrawal Rules
- A LIRA Can Eventually Be Converted to a Retirement Income Account
- You Usually Cannot Move a LIRA Straight Into an Ordinary RRIF
- RRIF and LIRA Tax Treatment Is Similar While Money Remains Registered
- How to Tell Whether You Have a RRIF or LIRA
- Other Questions About RRIFs and LIRAs
RRIF vs. LIRA at a Glance
| Feature | RRIF | LIRA |
|---|---|---|
| Main purpose | Pay retirement income | Hold locked-in pension money |
| Comparable account | Retirement-income version of an RRSP | Locked-in version of an RRSP |
| Typical source of funds | RRSP and other eligible registered transfers | Employer pension plan |
| Annual minimum withdrawal | Yes | No |
| Regular withdrawals allowed | Yes | Generally no |
| Money locked in | Generally no | Yes |
| Tax on investment growth while inside account | Tax-deferred | Tax-deferred |
| Tax on taxable payments | Generally taxable | Tax generally arises when money is eventually paid from an income arrangement |
| Rules governed by pension legislation | Generally not the defining restriction | Yes |
Both are registered retirement arrangements, but they are not alternatives that someone can freely choose for the same money. The origin and locked-in status of the funds often determine which account is available.
A LIRA Holds Locked-In Pension Money
A LIRA generally receives pension money when someone leaves an employer pension plan and is permitted to transfer the commuted or account value out of that plan. The transferred money remains subject to the pension legislation that originally applied to it.
For income-tax purposes, a LIRA meets the requirements for an RRSP while also satisfying federal or provincial pension locking-in requirements. That is why a LIRA is commonly described as a locked-in RRSP.
The locking-in rules are meant to preserve pension assets for retirement income. You therefore cannot normally treat a LIRA like an ordinary RRSP and simply withdraw money whenever you want. Exceptions can exist for circumstances such as financial hardship, shortened life expectancy, non-residency or a sufficiently small balance, but the available rules depend on the pension jurisdiction governing the account.
A RRIF Is Designed to Pay Retirement Income
A RRIF works in the opposite direction. Rather than primarily accumulating retirement savings, it is structured to make payments to its annuitant. Money can be transferred into a RRIF from an RRSP and certain other eligible registered plans, and investment earnings can continue growing on a tax-deferred basis while they remain inside the fund.
The year after a RRIF is established, the carrier must begin paying at least the applicable RRIF minimum withdrawal. The required amount changes with age and the account’s value.
There is no corresponding annual payment requirement for an ordinary LIRA because it is still an accumulation account. Before regular retirement income can begin, locked-in money generally has to move into an income arrangement permitted by the pension rules.
RRIFs and LIRAs Have Very Different Withdrawal Rules
Withdrawal flexibility creates the clearest practical difference between these accounts. Once the annual minimum has been met, a regular RRIF generally has no maximum withdrawal limit. You can withdraw more than the RRIF minimum or even empty the account, although the resulting taxable income can be substantial.
A LIRA generally does not permit ordinary cash withdrawals. Access is restricted because the funds retain their locked-in pension status. An applicable unlocking provision must exist before money can be taken out contrary to the normal locking-in rules.
Those unlocking provisions are not uniform across Canada. The pension law attached to the original pension plan continues to matter even if you later move to another province. We would therefore check the pension jurisdiction before relying on an unlocking rule found online simply because it applies in the province where you currently live.
A LIRA Can Eventually Be Converted to a Retirement Income Account
A LIRA is not intended to remain an accumulation account indefinitely. When you reach the age at which the applicable pension legislation permits retirement income to begin, the money can generally be transferred to an approved retirement-income arrangement.
One common destination is a Life Income Fund (LIF). A LIF meets the federal requirements for a RRIF while retaining pension locking-in restrictions. It must pay at least the federal RRIF minimum, but pension legislation generally limits the maximum amount that can be withdrawn each year.
That creates a useful parallel:
RRSP → RRIF
LIRA → LIF or another permitted locked-in retirement-income arrangement
The second route varies more because pension legislation differs across jurisdictions. The difference between a RRIF and LIF becomes relevant once locked-in savings move from accumulation to retirement-income payments.
You Usually Cannot Move a LIRA Straight Into an Ordinary RRIF
A direct transfer from a LIRA to a regular, unrestricted RRIF would normally remove the pension protections attached to the money. Pension legislation therefore generally prevents that transfer unless a specific unlocking provision allows the funds to lose their locked-in status.
When money is validly unlocked, the applicable rules determine where it can go. Some jurisdictions allow eligible amounts to be transferred to an ordinary RRSP or RRIF rather than forcing the owner to take the entire amount as taxable cash.
The exact opportunity depends on the governing pension law. There is no single Canada-wide age, percentage or procedure for unlocking every LIRA.
RRIF and LIRA Tax Treatment Is Similar While Money Remains Registered
The locked-in label changes access to the money, but it does not create a separate system of annual taxation. Investment income and gains generally remain tax-deferred while assets stay within either registered arrangement.
With a RRIF, payments received by the annuitant are generally taxable income. The required minimum normally has no tax withheld at source, while amounts above it can be subject to RRIF withholding tax.
A LIRA normally does not make ordinary retirement-income payments in the first place. Tax becomes relevant when money is eventually paid from a permitted retirement-income arrangement or when an unlocking provision results in a taxable withdrawal. A direct qualifying transfer between registered arrangements does not have the same immediate tax treatment as taking the money personally.
How to Tell Whether You Have a RRIF or LIRA
The account name on your financial institution’s records should identify the arrangement, but the history of the money is also revealing. Personal RRSP savings that were converted to retirement income commonly sit in a RRIF. Money transferred out of an employer pension plan before retirement may instead be held in a LIRA.
For a LIRA, also identify which pension jurisdiction governs the funds. Federal pension rules apply to certain federally regulated employment, while provincial pension legislation covers many other plans. That jurisdiction determines important details such as unlocking opportunities and the retirement-income arrangements available later.
This matters more than the account’s investment menu. A RRIF and LIRA can hold many similar qualified investments, but the legal restrictions on accessing the money are fundamentally different.
Other Questions About RRIFs and LIRAs
Can you have both a RRIF and a LIRA?
You can hold both accounts when you have appropriate funds for each. For example, personal RRSP savings could be converted to a RRIF while pension money from a former employer remains locked in within a LIRA.
Is a LIRA the same as a locked-in RRSP?
A LIRA is an arrangement that satisfies the Income Tax Act requirements for an RRSP while also complying with applicable pension locking-in requirements. Terminology varies by pension jurisdiction, which is why locked-in RRSP and LIRA can appear in discussions of the same type of locked-in retirement savings.
Does a LIRA have minimum withdrawals?
A LIRA itself does not have the annual minimum-payment requirement that applies to a RRIF. Minimum retirement-income payments become relevant after the money moves into an eligible income fund such as a LIF.
Can you convert an ordinary RRIF into a LIRA?
An ordinary RRIF cannot simply be turned into a LIRA to make the money locked in. A LIRA exists to hold qualifying pension funds that are subject to pension locking-in requirements. The source and legal status of the money determine whether it belongs in a LIRA.
