Author Topic: How to unlock a LIRA? (Canada)  (Read 1792 times)

Zikoris

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How to unlock a LIRA? (Canada)
« on: July 17, 2017, 09:12:27 PM »
We still have a few years to go before FIRE, and are in an unexpected situation - our new employer matched plans are locked-in, and we're trying to figure out how we should go about unlocking them post-FIRE. We're in BC. From what I can find, there seem to be two possible routes, though I'm having trouble finding specific information on how either of them works:

1. Temporarily become a non-resident of Canada. Can you even do this and still be a citizen? I would not be opposed to getting a residency visa somewhere else and waiting out whatever time period I need to, but am not sure on the logistics.

2. Hardship clause. It seems that if you're expected income is under a certain threshold, you can apply to withdraw a certain amount per year. I could pretty easily swing near-zero income post-FIRE just by saving up a cash cushion in my last year of work. Is there any sort of means test to prove hardship? After quitting, I would transfer my LIRA to the same institution I hold my 'stash with, so they would be fully aware of my life situation. I suppose I'm asking if you have to be in actual hardship to use the hardship clause, or if you only need to artificially deflate your income.

Other suggestions?

Zikoris

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Re: How to unlock a LIRA? (Canada)
« Reply #1 on: July 17, 2017, 09:28:40 PM »
Alberta has the right to unlock up to 1/2 prior to establishing a LIRA, which does not appear to be the case in BC, and I assume you won't be 50 years of age when retiring?

If your firm has an AB office, maybe transferring there and moving funds once you retire would allow said unlocking?  (Some other provinces have similar ability to unlock a percentage, but I haven't googled this...)

http://www.finance.alberta.ca/publications/pensions/pdf/info_accessing_pension_funds.pdf

We'll be probably 35 and 33 when we retire - so nowhere close to 50!

Interesting idea about relocating. Our company is actually headquartered in Calgary, so that would be petty simple, but I'm not sure its worth it to uproot our lives solely to unlock a LIRA. But if we had another reason to move, it might not be a bad idea.

SoftwareGoddess

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Re: How to unlock a LIRA? (Canada)
« Reply #2 on: July 18, 2017, 09:01:13 AM »
With regard to which province's unlocking rules apply, it doesn't matter where you live -- it matters where the pension plan/LIRA is registered, so confirm that first.

Assuming that your plan is registered in BC, this form (www.fic.gov.bc.ca/pdf/Pensions/SOP-FHU.pdf) says that you can withdraw money from a LIRA due to financial hardship if you expect to earn less than $36,867 for the next 12 months. That is as of 2017; I think that number is a percentage of the max pensionable earnings, which usually increases every year.

You might also find this document helpful: http://www.fic.gov.bc.ca/pdf/Pensions/FAQ.pdf?v=5. If it turns out that your plan is not registered in BC, then this might be helpful, too: http://www.taxtips.ca/pensions/rpp/unlockingrpp.htm.

snowball

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Re: How to unlock a LIRA? (Canada)
« Reply #3 on: July 18, 2017, 10:29:22 AM »
1. Temporarily become a non-resident of Canada. Can you even do this and still be a citizen? I would not be opposed to getting a residency visa somewhere else and waiting out whatever time period I need to, but am not sure on the logistics.

Oh, this I know about!  :)  I'm officially a non-resident as of this year.  You can absolutely do this and remain a citizen;  you file a departure tax return once with CRA, and then never again until/unless you return to Canada.

Couple of notable things about this status, beyond the requirement to qualify under CRA's list of primary/secondary ties to Canada (which you can find online):

- You must be considered a resident of another country in order to be a non-resident of Canada.  (So that foreign residency visa you mentioned is a necessity. Simply leaving the country and travelling the world for years doesn't make you a non-resident.  If no other country claims you, Canada does.)

- You must have no plans to return to Canada.  This one is about intention at the time you declare non-residency.  Non-residents do in fact return to Canada all the time, and don't get in trouble with CRA for it - but it's dependent on whether they believe you were honest about your intentions.  Staying away for several years and raising children in another country?  You're going to be fine.  Leaving and moving back after six months?  They're going to retroactively reassess you as a resident for that period of time.  Mostly that just means you'll owe them whatever income taxes you didn't pay over that period, taking into account whatever tax treaty might exist between Canada and the country where you were living.  I don't know what would happen with a LIRA, if you unlocked it based on your non-resident status and then retroactively lost that status.

(You can optionally get an opinion letter from the CRA about whether they consider you a non-resident in your situation, which is what I did, but this letter is explicitly not binding, and CRA reserves the right to change their minds later about your intent to return.  And they do that on a case by case basis, looking at each situation individually, which is why I'm not giving you any specific rules about how long you have to be living out of Canada for your non-residency status to pass the sniff test.  That's not the only factor they look at.)

TL;DR:  I wouldn't do this just for a LIRA.  It would be a lot simpler to go the financial hardship route.

Goldielocks

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Re: How to unlock a LIRA? (Canada)
« Reply #4 on: July 18, 2017, 12:20:19 PM »
We still have a few years to go before FIRE, and are in an unexpected situation - our new employer matched plans are locked-in, and we're trying to figure out how we should go about unlocking them post-FIRE. We're in BC. From what I can find, there seem to be two possible routes, though I'm having trouble finding specific information on how either of them works:

1. Temporarily become a non-resident of Canada. Can you even do this and still be a citizen? I would not be opposed to getting a residency visa somewhere else and waiting out whatever time period I need to, but am not sure on the logistics.

2. Hardship clause. It seems that if you're expected income is under a certain threshold, you can apply to withdraw a certain amount per year. I could pretty easily swing near-zero income post-FIRE just by saving up a cash cushion in my last year of work. Is there any sort of means test to prove hardship? After quitting, I would transfer my LIRA to the same institution I hold my 'stash with, so they would be fully aware of my life situation. I suppose I'm asking if you have to be in actual hardship to use the hardship clause, or if you only need to artificially deflate your income.

Other suggestions?

You can also unlock if the total value is quite small, and often the portion that was your own contributions (only 60% of my Safeway pension was required to be locked in, for example), and there is a clause to unlock more if you are 50 or over and within a year of losing your job.

The hardship clause or small value clause may be your best bets.

Failing that, you can do as I do -- I treat the locked in as my long term savings, for post retirement, as I will need some money when I am over 65, too!  In truth, it is only about 15% of the totals, so this is easy for me not to worry about.  I do have full control over it, like the other funds, but I just can't withdraw from it, or merge it into my other account for easy handling.

Zikoris

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Re: How to unlock a LIRA? (Canada)
« Reply #5 on: July 18, 2017, 07:27:42 PM »
You can also unlock if the total value is quite small, and often the portion that was your own contributions (only 60% of my Safeway pension was required to be locked in, for example), and there is a clause to unlock more if you are 50 or over and within a year of losing your job.

The hardship clause or small value clause may be your best bets.

Failing that, you can do as I do -- I treat the locked in as my long term savings, for post retirement, as I will need some money when I am over 65, too!  In truth, it is only about 15% of the totals, so this is easy for me not to worry about.  I do have full control over it, like the other funds, but I just can't withdraw from it, or merge it into my other account for easy handling.

Good stuff. It's looking like the hardship clause is the way to go if we want to get at the money right away, or we can wait and use it in old age as a second option. I don't see it becoming a huge part of our portfolio or anything, since it will only be about 8% of our income going into it. I'm going to get a kick out of writing a letter/application to my brokerage pleading hardship post-retirement :)

I wonder how likely it would be for the government to change the rules to make it harder to unlock a LIRA in the future.