Maybe you’ve looked at an investment  statement and never noticed it before. Or maybe your former employer has sent you a letter with it. That strange little acronym that was never talked about at school. Never on display at the bank. “LIRA”. What is it and what does it mean? 

A LIRA, short form for “Locked-In Retirement  Account”, is simply a unique account type for  housing pension funds that aren’t ready to be spent  yet. Just like an RRSP or TFSA, a LIRA has unique  rules about how it must be operated and how it  must be taxed. 

LIRAs are formed when an employee leaves a firm  with a qualifying pension. Pensions, depending on  province of legislation, have rules about how much  can be paid out and when money can be paid out. In  order to maintain that legislative integrity, but also  allow employees to take their money with them, the  LIRA was born. 

You cannot deposit personal funds into a LIRA. You  can only add money by rolling in more pension  funds with the same provincial legislation. You  cannot withdraw from a LIRA. It must be converted  into a Life Income Fund (LIF), annuity or Prescribed  RRIF in order to access funds. Often LIRAs cannot  be converted before the age of 55 and must be  converted by December 31st of the year of the  owner turns 71. 

There are no capital gains, interest or dividends  to report for income tax if your LIRA grows. Any  withdrawals after the LIRA has been converted  will be taxed in the hands of the owner as  normal income.

LIRAs can hold a wide variety of investments. Mutual funds, segregated funds, GICs, cash and more. You can run your LIRA as a self-directed account or hire someone to manage it for you.

If you’re young with a longer time horizon for retirement, consider being aggressive with your investment selections within your LIRA. The tax advantaged growth and restricted income options make it the perfect vehicle for higher risk, higher returning investments. If you’re closer to retirement age, you’ll likely want a more moderate level of risk with your investments inside a LIRA as the income years are just around the corner.