Laws being changed regarding locked-in accounts

I continue to get many questions on how to unlock locked-in accounts.

I continue to get many questions on how to unlock locked-in accounts. First,  let me start by explaining what a locked-in account is. Employees who retire, terminate their employment early, or find their pension plan being discontinued need to make some important decisions.  Some pension plans are being closed and employees have the “lump sum” or “annuity” option.  Other people are faced with a difficult choice of whether to take a lump sum of money from the pension today, purchase an annuity, or wait to receive a monthly cheque at retirement.   The lump sum option allows the fully vested (owned) pension benefits to be transferred to a locked-in registered plan.

What is a locked-in account?  This type of investment account is registered and is one where the plan issuer signs an agreement with your employer to “lock-in” your pension plan proceeds until retirement.  A lump sum from your pension plan is transferred into the registered locked-in investment account.  The age at which the funds may be released, and to what uses they may be put, vary with the pension legislation governing the plan.  Any amounts earned by the plan also become locked-in.

Withdrawals are generally not allowed from Locked-in Registered Savings Plans (LRSP) or Locked-In Retirement Accounts (LIRA), except in limited circumstances such as shortened life expectancy, small balance or financial hardship.  The governing legislation controls these funds, even though the employee can invest them as they wish (similar to an RRSP).  Some provinces have been changing their legislation with respect to locked-in accounts.

The minimum and maximum withdraw amount will fluctuate from year to year and is based on the previous year-end value.  The year-to-year amount will vary depending on the amount of money you withdraw, the income your plan earned and any market fluctuations that may occur.  A LIF is similar to a RRIF in that the holder is required to receive a minimum payment out of the plan each year.  The minimum payment levels are calculated using the same method used for RRIF payments.  Additionally, these accounts are subjected to a maximum withdrawal limit. The maximum amount is established by a formula, which takes into account a discount factor and your age.

In the first year a LIF is opened, there is no minimum withdrawal required, however,  there is still a maximum allowable payment. This maximum is pro-rated for the number of months, including the month of transfer into the plan, remaining in the year. One can transfer this maximum amount in the first year to a RRSP even if you have no RRSP room and in subsequent years you may transfer the difference between the minimum and maximum payments, this can be done up until age 71.

Remember to always consult your advisor before taking any action.

 

Stuart Kirk is a Wealth Advisor with Precision Wealth Management Ltd. The opinions expressed are those of the author and may not necessarily reflect those of Precision Wealth Management Ltd. For comments or questions Stuart can be reached at stuart@precisionwealth.ca or 250-954-0247. Website:

www.precisionwealth.ca

 

 

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Prince Philip is seen here talking to Alex Rennie about platters of food presented by the culinary deparment at Malaspina College (now Vancouver Island University) in 1983. (Courtesy of Alex Rennie)
Parksville man recalls meeting Prince Philip at what was then Malaspina College

Alex Rennie, a former culinary instructor, got to shake hands with royal visitor

The Town of Qualicum Beach is set to hold a byelection on May 15. (PQB News file photo)
Restaurant owners Oura and Kymon Giakoumakis visit the PQB News/VI Free Daily studio. (Peter McCully photo)
PQBeat: COVID-19 pandemic hits food service industry hard

Podcast: Parksville Qualicum Beach restaurant owners share thoughts and advice

The St. Andrews Lodge Historical and Cultural Society wants the old building included in the Town of Qualicum Beach’s Heritage Register. (PQB News file photo)
Qualicum Beach councillor offers to help pay St. Andrews Lodge society’s bills

Group wants building included in town’s heritage register

Ballenas Secondar School (PQB News file photo)
COVID-19: Another exposure reported at Parksville’s Ballenas Secondary

Public health staff are completing contact tracing

B.C. Health Minister Adrian Dix and Premier John Horgan describe vaccine rollout at the legislature, March 29, 2021. (B.C. government)
1,262 more COVID-19 infections in B.C. Friday, 9,574 active cases

Province’s mass vaccination reaches one million people

Two-year-old Ivy McLeod, seen here on April 9, 2021 with four-year-old sister Elena and mom Vanessa, was born with limb differences. The family, including husband/dad Sean McLeod, is looking for a family puppy that also has a limb difference. (Jenna Hauck/ Chilliwack Progress)
B.C. family looking for puppy with limb difference, just like 2-year-old Ivy

Ivy McLeod born as bilateral amputee, now her family wants to find ‘companion’ puppy for her

A vehicle that was driven through the wall of a parkade at Uptown Shopping Centre and into the nearby Walmart on April 9 was removed through another hole in the wall later that night. (Photo via Saanich Police Department and Ayush Kakkar)
Vehicle launched into B.C. Walmart removed following rescue of trapped workers

Crews cut new hole in parkade wall to remove vehicle safely

Four members with Divers for Cleaner Lakes and Oceans were out at Cultus Lake on March 28 and 29 hauling trash out of the waters. (Henry Wang)
PHOTOS: Out-of-town divers remove 100s of pounds of trash from Cultus Lake

Members of Divers for Cleaner Lakes and Oceans hauled out 470 pounds of trash over two days

As of Saturday, April 10, people born in 1961 are the latest to be eligible for a COVID-19 vaccine. (Black Press files)
B.C. residents age 60+ can now register to get their COVID-19 vaccine

Vaccine registration is now open to people born in 1961 or earlier

A new saline gargle test, made in B.C., will soon be replacing COVID-19 nasal swab tests for kids. (PHSA screenshot)
Take-home COVID-19 tests available for some B.C. students who fall ill at school

BC Children’s Hospital plans to provide 1,200 kits to Vancouver district schools this April

Ruming Jiang and his dog Chiu Chiu are doing fine following a brush with hypothermia that saw several people work together to get them out of the Fraser River near Langley’s Derby Reach Park on March 25, 2021 (Special to the Advance Times)
Man finds men who rescued him from drowning in B.C.’s Fraser River

A grateful Ruming Jiang says he will thank them again, this time in person when the pandemic ends

The 10-part Netflix series Maid, which is being exclusively shot in Greater Victoria, was filming near Prospect Lake in Saanich last month. (Photo courtesy Fred Haynes)
Province announces $150,000 towards South Island film studio, fulfilling B.C. NDP promise

Investment to fund movie studio feasibility study at Camosun College

Tyson Ginter, 7, is proud of his latest Hot Wheels he recently received by Quesnel RCMP Const. Matt Joyce. (Photo submitted)
B.C. Mountie handing out toy cars to light up children’s faces

‘A lot of times it will be the only interaction they have with the police,’ says Const. Matt Joyce

Most Read