Life & Money

Yes, You can Transfer Your RRSP or TFSA and Unlock Your Small LIRA

August 10, 2017


Yes, You can Transfer Your RRSP or TFSA and Unlock Your Small LIRA

Life & Money

OK, maybe they don’t like you. Maybe you got audited and the Canada Revenue Agency found something fishy. Maybe someone who actually works at the CRA (a spurned lover, arch-nemesis from high school, etc) specifically has it in for you. But can you transfer your RRSP or TFSA without having to pay them a cut? Yeah, you can do that. They don’t really care.

Just so we’re totally clear: you can transfer your RRSP or TFSA without incurring tax consequences (in case of an RRSP) or losing your contribution limit (in case of a TFSA).

I get this question around transferring your RRSP, TFSA or small LIRA a lot. Clearly, many Canadians care about this. And why wouldn’t they? No one likes to pay penalties and taxes. So I’m happy to share this good news.

To put it another way: if you had opened an RRSP with an institution that no longer suits your needs, you can leave without fear. The tax man is not coming after you to make you pay a penalty.

Need to transfer your registered account to a completely different financial institution such as CI Direct Investing, or maybe a completely different investment product? Don’t want to incur taxes or penalties? You can use the CRA form, T2033 Direct Transfer Under Subsection 146.3(14.1), 147.5(21) or 146(21), or Paragraph 146(16)(a) or 146.3(2)(e).

Just try saying that 10 times fast. I dare you!

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Most companies have a simpler, more user friendly version of the form with their own logo. It uses (mostly) English descriptions of form fields. Most institutions call it an Interinstitutional Transfer of a Registered accounts. Unlike the CRA version, the branded version of financial institutions does include TFSA’s. Just fill it out and you can avoid paying a penalty.

The bottom line? You transfer your account without tax consequences and without affecting your contribution room or limit. I think that’s pretty cool.

A related question I get a lot: “can I unlock my pension if I leave an employer before I retire?”

AbsolutelyYes, you can unlock your pension if you leave an employer before you retire. The caveat? You can only do it to a certain maximum and only in certain provinces.

For most provinces, there is a rule of thumb. If the accrued value of your pension plan is transferred to a Locked-in Retirement Account, then it can be unlocked if the account meets certain conditions. The main condition is the size of the account.

This type of account behaves very similarly to an RRSP. However, you cannot take money out (even if you are willing to pay tax on it) or put more money in. Did you only work somewhere for a couple of years? Only have a small part of your pension vested? You will end up with an account that is somewhere between $1,000 and $10,000. 

It can be a big pain to deal with this account separately, especially if you are changing providers. But there is good news! Certain provincial jurisdictions allow you to unlock up to 20% of YMPE($55,300 in 2017) and combine it with your RRSP. You do not need to keep a small account you have to separately manage for the rest of the days until you retire. (Even then, the LIF has a maximum withdrawal, so this tiny account issue will drag on and on.)

Looking to transfer your RRSP or TFSA?

Not sure if your accounts would qualify? We can help! Talk to your advisor. Ask questions. Don’t suffer with bad customer service, poor returns or high fees. This is one of those few times where the CRA is on your side and you can choose your provider without fear.

A few minutes today could save you thousands tomorrow.
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  1. Jim

    Every other financial blog or advice I have come across say that there are tax implications moving RRSP funds into a TFSA. Why are you so certain that this can be done? To say that "they don't care" seems not believable.

  2. John R. Morris

    I have a small LIRA which was transferred from my spouse's estate from a pension plan in Saskatchewan. If I convert to PRIF does this conversion trigger withholding tax or is withholding tax taken when I withdraw from the PRIF

    • Jonathon Narvey

      Great question, John! The act of converting the account doesn't trigger a tax liability, but the converted account is required to pay a certain amount of income each year. Those income payments are subject to a withholding tax. This next bit might be of particular interest to you. If the account value is less than 20 percent of the Year's Maximum Pensionable Earnings (YMPE) you may be able to unlock the account in full. For 2018, the YMPE is $55,900, which means that if your Saskatchewan LIRA is worth less than $11,180, you may be able to unlock your entire account.

  3. kal

    I have a Lira from previous employer. I want to transfer it out of Standard Life as their ROI is terrible. I'm in BC but I think the plan is out of Ontario. Can I transfer the LIRA to a TFSA or into another LIRA at a bank? If so, what bank is best? Thank you.

  4. Pat

    I have been living off my RRIFs for the past year, and reaching a point now, that the taxes I pay on it, could be soon, outwaying any interest. Is there another option? There is about $60,000 left on it. thanks!

    • Jonathon Narvey

      The RRIF was meant for cases like yours, to provide an income in retirement. It sounds like you are invested in a conservative portfolio that preserves capital in times of volatility. That's great! Keep in mind that you didn't have to pay taxes originally on any of the growth in that portfolio. Sooner or later, you do have to pay taxes.However, there may be variables you didn't include here. In your case, I'd suggest contacting your financial adviser for more information.

  5. Keith

    I have recently changed jobs and the pension from my old employer was put into a LIRA. I only have about $12500 in there and am wondering if there is a way to transfer those funds into a traditional RRSP so that I can put that money towards a down payment as a first time home buyer? I'm 27 and live in Ontario.

    • Jonathon Narvey

      Hey Keith! Good to hear from you. Typically, you can only receive payment from your LIRA when you reach 55 years of age or at an age where you would have been eligible for a pension from the pension plan (whichever is less). At which point you can convert your LIRA to a LIF (Life Income Fund) and receive an income stream. You are also able to do a one-time 50% unlocking from your LIF account to an RRSP or RRIF. This must be done within 60 days of the creation of your new LIF account. Special rules allow you to unlock your LIRA earlier. The conditions are hard to meet and generally do not apply in most cases. More information on the financial and non-financial unlocking provision can be found at the Financial Services Commission of Ontario website.

      • Francine

        If he only has $12,500 in his LIRA, it is a small amount and he is able to transfer it to an RRSP. He could then use if for the Home Buyers Plan

  6. Elaine Gabriel

    At the age of 38 after working 12.5yrs I quite my job and my pension was put into a locked in RRSP. I am now 54 and wondering when I am able to take this out or even start drawing on it if I wish. My plan hopefully is to put it in a TFSA. At what age am I able to get this locked in pension?

    • Jonathon Narvey

      Hey Elaine! Great question. Typically withdrawals cannot begin before age 55 and you must convert the account into a LIF (locked-in Life Income Fund) to start the withdrawals. Minimum and maximum withdrawal amounts can be taken each year thereafter (using either your age or your spouse’s age). You may be able to do a lump-sum withdrawal, but there are restriction on a province by province basis as follows: – Small balance – Financial hardship – Shortened life expectancy – Spousal or child support – One-time unlocking of 50% of LIRA to a RRSP The decision to start withdrawals can often be dictated (or optimized) through tax planning since all payments/withdrawals are fully taxable. Talk to your adviser!

      • Omid

        "withdrawals cannot begin before age 55" this is not true, it can but we need to pay income tax

  7. Helen Hume

    Hi I live in BC ...My LIRA is worth 113,000 .. I am on a PWD (person with disability) Through the ministry..I am wanting to buy a primary residence.I am going to be 53 soon..Can I use a small down payment from my LIRA to do so.The property I am interested in is 159,000. So it would not be a large down payment..?

    • Jonathon Narvey

      Hey Helen. From what we understand, you can’t use the LIRA to participate in the Home Buyer’s Plan, but you may be able to convert the LIRA to a life income fund (LIF) and get money out that way. That said, this conversion usually this can’t be done before age 55. It all depends on the pension from which the funds originated. Your disability situation could potentially impact your options as well.Check out the Pension Benefits Standards Act of British Columbia online and there is an FAQ page you may find helpful. For help with your specific situation, if you need further assistance, we'd suggest setting up a chat with a financial adviser. Thanks for getting in touch!

  8. Don K

    Hi there, in 2017 we took my wifes company pension plan and transfer to a riff and moved out the allowed amount as the bank said we could do into her rrsp. I just received a reassessment from revenue Canada as they said because she had income from the pension and is on disability I lost using the balance of the disability credits, even though we didn't take the money out, It was just moved to a rrsp. The bank issued a t4riff payment and a rrsp deposit. The net effect is a 2k tax bill. doesn't seem fair.

  9. Adam

    Hi there, I have a question about a LIRA account and nobody seems to know the answer! My pension from my former employer in Alberta was moved into a LIRA account when I moved to Ontario. In a settlement with my ex-wife, I agreed to transfer the whole amount in my LIRA to her. However, the law seems to (I did not know at the time) that you can transfer up to 50% of your LIRA to your ex. Now, my ex is after me for the other half (she wants cash instead now). So here is my question: Is there a way at all to transfer all my LIRA to her? Thanks and happy new year

  10. Kim Goodall

    My husband had a small pension which we unlocked from a RRSP/GIC . We had the Royal bank transfer the money to the CIBC . For 2 yrs we thought it had been put in a GIC when it matured thus February 2019. We instructed the CIBC to transfer it out and into a e advantage savings account. The money was 7500. They took 1500 . We didnt want to pay tax on this we didnt realize that it was actually put into another RRSP/ Market linked GIC . This happened on February 5th we want it reversed back into a RRSP can we do it our bank representative told us no it's to late.

    • Jonathon Narvey

      Hey Kim. This sounds like a serious issue. However, in order to provide you with useful advice, we would need a few more details. Please feel free to set up a call with one of our financial advisers, so we can get you the advice you need. Thank you!

  11. nora

    i am trying to withdraw from my rsp and Dpsp( ressop plan with my employer) where my employer contributes a certain amount and me too. Is there any way i can withdraw from these plans without incurring any taxes?

  12. Terry

    I split my LIRA into an RRSP and a RIF, but at tax time the CRA is saying the RIF amount is taxable income. How so ?

  13. Charissa Lavoie

    Can i transfer my locked in rsp to a rrif and that it would be unlocked ?

  14. Jeffrey Walker

    I have a pension i earned in alberta the commuted value is approx $71000 if i transfer to a Lira than to a lif can i unlock a portion of that and put it into an rrsp im currently 45 years old iunderstand alberta has an 50% unlocking when transfeeing from a lira to a lif or to rrif

  15. Sandra

    I was told i could convert my lira to lif at the age 50. I live in bc. I only have 40,000 in my lira. I would like to withdraw some of this money. Is this possible. Or can i transfer it to a rrsp

  16. Marlene

    Hi, i quit a job with a bc pension only about 25,000 . I was told i need to put it in a lira, I wanted to know if i can access this money. I'm 53 years old and don't know the best way forward? Thanks

  17. Monais

    Hi there - great article. Was wondering if I could withdraw my locked in RRSP and set it up as a mortgage. Not a mortgage for me, I have a house. But a co worker is looking for a place and he doesn't have enough of a down payment. He's a good risk, he's been here for 7 years, has had promotions, just a divorce set him back. So, can I take my locked in RRSP and loan it to him for a better return than it is getting at the bank provided that loan is backed by real estate?

  18. Suzanne Buck

    Hi! Can I put my LIRA into a tax free savings account?

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