Q

What's a LIRA?

A

It's an account that lets you roll over money from a pension account after you leave your job.

But it also happens to be the acronym for Canada’s own Locked-In Retirement Account, a favourite registered account of career changers nationwide. See a LIRA is the account you’ll need if you leave a company where you had a pension and would prefer not to abandon your money. Technically, it’s a rolled-over retirement account.

Once a pension is converted to a LIRA, you’ll no longer be able to make contributions to it. You will, however, still have full control over how your money is invested. Even ig you depart a job under less than happy circumstances — say you’re fired, or laid off — you’ll be in the market for a LIRA. When you retire, LIRAs, like their cousins the RRSPs, must be converted to an account from which you’ll draw your retirement income, and you must close any and all LIRAs by December 31st of the year you turn 71. These accounts that hold all that former LIRA money are called Life Income Funds or LIFs — and we know how much you adore acronyms, so you’re welcome.

But take note: there can be some potential headaches associated with LIRAs, specifically the often complex rules surrounding how and when the money can be withdrawn — rules which vary from province to province. The biggest bummer is that with LIRAs, unlike with RRSPs, you cannot withdraw funds early to purchase a home or go back to school without incurring prohibitively heavy tax penalties.

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