What are life income funds (LIF)?

A life income fund (LIF) is a registered retirement income fund (RRIF) that was purchased with locked-in funds. Locked-in funds usually come from an employer pension plan.

If you worked for a company with an employer pension plan and left your job or ended plan membership before normal retirement age, your pension funds would have been “locked-in” under provincial pension legislation. That means they weren't available to you in cash until the early or normal retirement age set out in that province's pension legislation.

Those funds were transferred to a locked-in retirement account (LIRA). Once you reach normal retirement age, you can transfer a LIRA to a LIF.

You can convert the LIRA to a LIF or a life annuity when you reach normal retirement age. You must convert the LIRA to a LIF by the end of the calendar year you turn 71. You are not required to begin drawing income until the following year — the year you turn 72.

• If you live in British Columbia, Alberta, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, or Newfoundland and Labrador, you can purchase a LIF.

• If you live in Saskatchewan or Manitoba, you may have the option of purchasing a prescribed registered retirement income fund (PRRIF):

  • If your funds are locked-in under Saskatchewan legislation, you can transfer the full amount of your locked-in funds to a PRRIF.

  • If your funds are locked-in under Manitoba legislation and you are at least 55 (the provincial early retirement age), you can unlock up to 50% of the LIF funds on a one-time (once-per-lifetime) basis and transfer them to a PRRIF.

  • A PRRIF has no maximum withdrawal amount, though the minimum withdrawal rules stay the same.

• If you live in Newfoundland and Labrador, you must convert your LIF to a life annuity by the end of the year you turn 80.

LIF withdrawals

Every year you have to take money out of your LIF, and there's a limit on how much you can take. The minimum is set by the same rules that apply to a RRIF. Most LIFs also have an annual maximum — something a RRIF doesn't have.

Whatever you withdraw counts as income and is taxed at your marginal tax rate. Your financial institution will send you a T4RIF slip showing the amount.

LIF minimum withdrawal

The prescribed LIF minimum amount is calculated the same way as a RRIF. You multiply the market value of your LIF at the beginning of the calendar year by the prescribed factor for your age (see chart below). You can take that withdrawal as monthly, quarterly, or semi-annual payments, or as a lump sum, as long as the total equals the minimum amount.

If the annuitant is 70 or younger, the prescribed factor is 1 divided by (90 minus the annuitant's age). The annuitant cannot be younger than the early retirement date stated in the pension legislation governing the LIF.

You must declare the amount you withdrew on your T1 general income tax return (the forms you complete to file your income tax) in the calendar year you took it out.

Remember: LIF withdrawal amounts are added to your gross taxable income. Depending on the size of the withdrawal, it could push you into a higher tax bracket.

Source: Canada Revenue Agency

Minimum withdrawal factors by age

Find your age in the chart below, then multiply that factor by your LIF balance on January 1. That's the least you have to take out this year. Most people will use the "all other RRIFs" column — the other two apply only to older plans, and we explain them underneath.

A pre-March 1986 RRIF is built to be fully paid out by age 90 — at 89 the factor is 1.0000, meaning the whole balance — which is why that column shows 0.0000 from 90 onward.

Use the "all other RRIFs" column unless one of the following applies:

• The pre-March 1986 column applies to RRIFs that were set up before 1986 and were never amended.

• The qualifying RRIF column applies to a RRIF that has never received any property as consideration other than transfers from another qualifying RRIF, and was set up:

  • before 1986 and has since been revised or amended

  • after 1986 and before 1993, or

  • after 1992 with funds or property transferred directly from another qualifying RRIF

If you withdraw only the minimum amount required, there will be no withholding tax. If you withdraw more than the minimum, your financial institution will withhold tax and remit it to the Canada Revenue Agency (CRA) on your behalf. Any withholding tax will be declared on Box 28 of your T4RIF.

LIF maximum withdrawal

Most LIFs also cap how much you can take out each year. The cap exists to stretch your locked-in savings — it's set so the account can keep paying you income until at least age 90.

Your maximum depends on three things: your LIF balance on January 1, your age, and a reference rate tied to the yield on long-term Government of Canada bonds. You may see that rate called the CANSIM rate. The formula uses whichever is higher, that rate or 6%, and the bond yield has sat below 6% for decades — so in practice the maximum percentages rarely move.

The exact formula comes from the pension legislation governing your LIF, which is the province your employer's pension plan was registered in, not necessarily where you live now. A few provinces calculate it differently, and Quebec-regulated LIFs no longer have a maximum at all for owners 55 and over.

LIF vs RRIF

A life income fund (LIF) and a registered retirement income fund (RRIF) both turn registered savings into retirement income. They are funded differently and follow different rules.

• Source of funds: a RRIF usually comes from a registered retirement savings plan (RRSP) or other non-locked-in savings, while a LIF holds locked-in pension money from a LIRA or former employer pension plan.

• Minimum withdrawal: both use the same age-based minimum withdrawal factors, so the yearly minimum is calculated the same way.

• Maximum withdrawal: a RRIF has no maximum. Most LIFs cap how much you can draw each year based on your age, account balance, and a yearly reference rate. (Quebec-regulated LIFs no longer have a maximum for owners 55+, as of 1 January 2025.).

• Flexibility: a RRIF gives you more access to your money, while a LIF is designed to spread locked-in pension savings across your retirement.

Advantages and disadvantages of LIFs

Advantages

• While the funds remain in the LIF, investment earnings are tax sheltered. You do not have to declare capital gains on your income tax.

• The funds in a LIF are creditor-protected, so the full balance cannot be seized to pay debts owing. However, the minimum withdrawal amount can be seized once the funds leave the LIF.

• Accountholders can choose their own investments, as long as the LIF minimum continues to be available.

• You can delay the collection of income until the year after you turn 71. That gives your investment returns more time to compound in a tax-sheltered environment.

• You may be able to unlock some or all of your LIF funds if:

  • you are facing a shortened life expectancy due to a terminal illness, or

  • you become a non-resident of Canada.

Disadvantages

• Maximum withdrawal limits mean you cannot always access extra income when you need it (this no longer applies to Quebec-regulated LIFs for owners 55 and over).

• You cannot start a LIF until you reach the early retirement age legislated by the pension rules of the province in which the pension plan was registered.

• If you live in Newfoundland and Labrador, you must convert your LIF to a life annuity at age 80.

• A LIF is governed by the same investment regulations as other registered products, with strict rules about what types of investments can be held in the account.

• You cannot use capital losses to offset your income tax owing while the funds are in the LIF.

Qualified investments include:

• Cash

• Mutual funds, segregated funds, exchange-traded funds

• Securities listed on a designated stock exchange (derivatives may be excluded)

• Corporate bonds

• Government bonds

Non-qualified investments for registered plans include:

• Investments that trade on over-the-counter markets

• A non-arm's-length transaction, such as a debt to the accountholder, or shares in a company in which the accountholder has more than a 10% interest

• Private mortgages, syndicated mortgages, angel investor arrangements, and other types of third-tier investment arrangements

The CRA has guidelines on prohibited investments and qualifying investments on their website. Non-registered accounts can hold many of the non-qualified investments that a registered plan cannot.

LIF rules

• You cannot purchase a LIF until you are at least the early retirement age specified in the pension legislation governing the pension plan the funds came from.

• You can begin receiving LIF payments when you reach the early retirement date or normal retirement date specified in the pension plan legislation. You must begin to receive payments in the year after you turn 71.

• LIF payments count as income, must be declared on your income tax, and are fully taxable at your marginal tax rate.

• If you have a spouse, you must obtain their consent before the LIF can be set up, because LIF withdrawals could affect a future death benefit payment.

• LIF investments follow the same rules as other registered products, and only certain types of investments are qualifying investments.

• You must adhere to the minimum and maximum withdrawal requirements.

• If your LIF is governed by Newfoundland and Labrador pension legislation, you must convert the LIF to a life annuity by the end of the year you turn 80.