Author Topic: LIRA investment types and recommendations  (Read 5599 times)

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
LIRA investment types and recommendations
« on: April 26, 2018, 06:22:19 AM »
Howdy all, I'm looking out to two years when I'll have to transfer my pension into a LIRA (I'm doing return of contributions). Is there anything I should do in order to avoid things like tax drag, since I'd prefer to go with 1-2 ETFs and just leave it there for 30+ years. Any recommendations? Since it's such a long time frame, I don't want to put bonds in, or concentrate on canadian (VCN) since I'll have that in my taxable portfolio, so I'm looking for the best way to have all-word-ex Canada, but without the tax drag of options like XAW (if possible)

Any recommendations, things I'm missing for using a LIRA?

Prairie Stash

  • Handlebar Stache
  • *****
  • Posts: 1795
Re: LIRA investment types and recommendations
« Reply #1 on: April 26, 2018, 09:13:18 AM »
PTF - my spouse will be getting forms next week about her pension, it will be a LIRA, that account will be in the range of $25k-40 (I forget off hand)

I assume that you treat it the same as the RRSP investments, now you have me wondering. If I understand correctly the money is locked until  59.5 years, so I was going to just put it into stocks as well and forget about it for the next few decades.

bluebelle

  • Pencil Stache
  • ****
  • Posts: 645
  • Location: near north Ontario
Re: LIRA investment types and recommendations
« Reply #2 on: April 26, 2018, 09:25:11 AM »
LIRAs (Locked in Retirement Account) is very similar to a RRSP with the following differences
1) You can not withdraw money until you're 55 (I think there's some 'hardship' clause that lets you get at it sooner)
2) There are annual maximums you can withdraw from a LIF (locked income fund - like a RRIF)  (annual minimums are the same as RRIF)
3) you can't merge LIRAs with RRSPs
4) there are federal LIRAs (from a bank for example) and provincial LIRAs (non federally regulate companies) and these can't be merged either

Treat it the way you're treat an RRSP with respect to investment strategy.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 965
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: LIRA investment types and recommendations
« Reply #3 on: April 26, 2018, 10:19:39 AM »
Howdy all, I'm looking out to two years when I'll have to transfer my pension into a LIRA (I'm doing return of contributions). Is there anything I should do in order to avoid things like tax drag, since I'd prefer to go with 1-2 ETFs and just leave it there for 30+ years. Any recommendations? Since it's such a long time frame, I don't want to put bonds in, or concentrate on canadian (VCN) since I'll have that in my taxable portfolio, so I'm looking for the best way to have all-word-ex Canada, but without the tax drag of options like XAW (if possible)

Any recommendations, things I'm missing for using a LIRA?
If you're in a federal pension plan, it will go into a Locked-in RRSP. The best I could suggest is doing a DLR/DLR.U swap and investing in VT or a blend of ITOT and IXUS. This will at least eliminate the U.S. portion of withholding taxes.

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
Re: LIRA investment types and recommendations
« Reply #4 on: April 26, 2018, 10:36:10 AM »
L-RRSP : it will be in the range of 120-140k
(So above the min withdrawal amount)

@rich moose (your . breaks the @ your name search) could you go a bit into detail about what you mean with the DLR/DLR.U Swap?

RichMoose

  • Pencil Stache
  • ****
  • Posts: 965
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: LIRA investment types and recommendations
« Reply #5 on: April 26, 2018, 11:25:46 AM »
L-RRSP : it will be in the range of 120-140k
(So above the min withdrawal amount)

@rich moose (your . breaks the @ your name search) could you go a bit into detail about what you mean with the DLR/DLR.U Swap?
Changing your account to US currency using Norberts Gambit and buying US listed ETFs.

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
Re: LIRA investment types and recommendations
« Reply #6 on: April 26, 2018, 12:35:43 PM »
@RichMoose IT WORKS!

Does L-RRSP not automatically have a tax arrangement for US withholding like RRSP?

RichMoose

  • Pencil Stache
  • ****
  • Posts: 965
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: LIRA investment types and recommendations
« Reply #7 on: April 26, 2018, 11:32:10 PM »
@RichMoose IT WORKS!

Does L-RRSP not automatically have a tax arrangement for US withholding like RRSP?
A lot of people are confused about this. If you are using an RRSP then withholding taxes will not be deducted on distributions from US sources ONLY if you buy US-listed ETFs. If you buy Canadian-listed ETFs in your RRSP, you will pay withholding taxes and they are not recoverable.

L-RRSP are considered the same as RRSPs for this purpose under the tax treaty.

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
Re: LIRA investment types and recommendations
« Reply #8 on: April 27, 2018, 11:13:11 AM »
VT sounds good. But no withholding on that one right? (if held in the account)

It's pretty much the same as holding ITOT and IXUS at a 51/47 % right? (with a 1% cash for some reason)

RichMoose

  • Pencil Stache
  • ****
  • Posts: 965
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: LIRA investment types and recommendations
« Reply #9 on: April 27, 2018, 11:44:28 PM »
VT sounds good. But no withholding on that one right? (if held in the account)

It's pretty much the same as holding ITOT and IXUS at a 51/47 % right? (with a 1% cash for some reason)
Yes VT is similar to a roughly even split of the other two. Most ETFs hold a bit of cash at any given time due to money coming in and going out.

With these you would not pay US withholding taxes. International ones would still apply to a lesser extent. These are not avoidable unless you forgo international stocks altogether.

Prairie Moustache

  • Stubble
  • **
  • Posts: 235
  • Age: 31
  • Location: BC's Best Small Town
Re: LIRA investment types and recommendations
« Reply #10 on: May 02, 2022, 07:22:47 PM »
Whenever I have a question that pops up, I always search and inevitably RichMoose and @Lews Therin have discussed it at some point. Thanks guys!

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
Re: LIRA investment types and recommendations
« Reply #11 on: May 02, 2022, 11:19:32 PM »
Whenever I have a question that pops up, I always search and inevitably RichMoose and @Lews Therin have discussed it at some point. Thanks guys!

Feel free to Batsignal with the @.

I'm FIRE'd now, so I don't browse the forum work-daily anymore. :D

afulldeck

  • 5 O'Clock Shadow
  • *
  • Posts: 45
Re: LIRA investment types and recommendations
« Reply #12 on: May 14, 2022, 03:35:40 PM »
Whenever I have a question that pops up, I always search and inevitably RichMoose and @Lews Therin have discussed it at some point. Thanks guys!

Didn't RichMoose leave the country?

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
Re: LIRA investment types and recommendations
« Reply #13 on: May 14, 2022, 05:57:58 PM »
Yup.

chasingsnow

  • Bristles
  • ***
  • Posts: 355
  • Location: Small Mountain Town British Columbia, Canada
Re: LIRA investment types and recommendations
« Reply #14 on: October 06, 2022, 03:25:58 PM »
Im resurrecting this old thread and batsignllaling (that's a word right?) @Lews Therin. I have an old DB pension through an old employer I worked there for 3 years but had a super high match. It's with a big Ontario pension fund. I am not sure if its vested or not, but do you think there is a benefit to me calling up the pension company and seeing if I can transfer it to a LIRA? My guess is its somewhere in the $40-$60k range.

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
Re: LIRA investment types and recommendations
« Reply #15 on: October 06, 2022, 06:31:27 PM »
I'd call, but chances are due to you not answering the rpeference between postponing or taking the transfer value, i'd guess you'll get it at 60.

Nothing to lose to check out it's value, maybe your plan will be more lenient.

There are so many different plans, its hard to tell you what the details of yours are.

chasingsnow

  • Bristles
  • ***
  • Posts: 355
  • Location: Small Mountain Town British Columbia, Canada
Re: LIRA investment types and recommendations
« Reply #16 on: October 07, 2022, 03:20:42 PM »
@Lews Therin  I called and checked. The value should be around $30k they said it can either be taken in cash (and its taxable) or put it into my RRSP (I still have contribution room for 90% of it). I suppose I could also just leave it in the pension plan. Thoughts?

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
Re: LIRA investment types and recommendations
« Reply #17 on: October 07, 2022, 05:36:45 PM »
So you have to do the math:
What is the amount you would get at what age if you left it in the pension plan.
Versus
What is the amount you will receive (after taxes) that will be invested at 7% yearly.
(Take the $ amount, removes taxes, then multiply by 1.07 exponential the amount of years till you can access the pension.

If 4% of the cash transfer value after all those years is significantly better, take it. If it's worse (unlikely) then go for the pension.

Feel free to throw the numbers here if you want me to check your math!

(You can also use a compound interest calculator online)

Final point: cash in hand for frugal people is much better than the same value received in the future (in case of emergencies)

chasingsnow

  • Bristles
  • ***
  • Posts: 355
  • Location: Small Mountain Town British Columbia, Canada
Re: LIRA investment types and recommendations
« Reply #18 on: October 12, 2022, 03:14:24 PM »
@Lews Therin Right now I think I would get like $167 a month, its a very small amount of money that does not seem worth it to keep it in the pension plan. I think the sum is somewhere between $20-$40k ( I will know for sure next week). Just the idea that I can transfer it to my RRSP for free makes me think that its better to bolster the account by $20-$40k and let the money compound with the existing $30k I have in there.

They currently let you take it out in cash but tax you 30% and that isn't counting what the CRA would tax it at as additional income (if any). So lets say there is $30k in the pension fund it would be $30k / 30% = $21,000 x 1.07 x 12 years (targeting 40 yr old retirement). Think the math is correct?

I am leaning towards transferring it at the full value of the pension to the RRSP to let it grow. My thought is that in the next couple of years we probably drain our RRSPs to buy a house and then put family inheritance $$ back in as part of the tax loop hole. Open to any thoughts you have as well? Can also PM you if that's easier?

Lews Therin

  • CMTO 2023 Attendees
  • Magnum Stache
  • *
  • Posts: 3896
  • Age: 34
  • Location: Gatineau
  • Fee-only Financial Planner
Re: LIRA investment types and recommendations
« Reply #19 on: October 12, 2022, 04:30:40 PM »
Couple of things to unpack.

A) 167$/month at 40? or 167$ month at 60?

B) If you are planning to use the money for the downpayment, indeed it's best to put in RRSP, then use with the First time home buyer plan

C) the amount would be 21,000$ X 1.07 ^12   = 47,296 - Which offers 1891$ yearly (157$/month) according to the 4% rule. That said, if the pension doesn't offer the amount until 60, your amount would then be 21,000$ X 1.07^37 = 183,020, or 610$ / month
---That's assuming it's all taxed at 30%.
**** it's 1.07 exponential the number of years, not multiplied.

D) Is it all taxable, or is there a locked-in portion, and finally, do you have the RRSP space to actually transfer it into the RRSP?

E) They tax you 30% as an estimate, the actual amount will be different at tax time, you will either be refunded, or pay more in most cases. It's unlikely to be exactly 30%.

So it's pretty clear that with the numbers you are looking at, it's way more useful now, in transfer value, than later as a guaranteed pension.

You can PM me if you have details you don't want to share on the forum and want more info.

chasingsnow

  • Bristles
  • ***
  • Posts: 355
  • Location: Small Mountain Town British Columbia, Canada
Re: LIRA investment types and recommendations
« Reply #20 on: October 14, 2022, 11:10:50 AM »
@Lews Therin sent you a PM!!

 

Wow, a phone plan for fifteen bucks!