Transfer a LIRA to an RRSP With No Contribution Room in Ontario

Can 50% of my LIRA be transferred to my RRSP if I do not have contribution room in Ontario Canada? Is it better to transfer to an RRSP or RRIF if funds are not needed and are used for investment purposes?
—Katherine

How much can you transfer from a LIRA to an RRSP?

In Ontario, you can generally transfer up to 50% of a locked-in retirement account (LIRA) to a registered retirement savings plan (RRSP) without needing RRSP contribution room. In certain situations—such as qualifying hardship or a shortened life expectancy—provincial rules may allow up to 100% to be unlocked. These provisions give you greater flexibility when planning retirement income.

Rules vary by province and by whether the pension was provincially or federally regulated. For Ontario-registered plans, common qualifying scenarios include:

1. Unlocking up to 50% of the LIRA after age 55.
2. Unlocking up to 100% in cases of serious financial hardship.
3. Unlocking up to 100% if life expectancy is two years or less.
4. Small-balance unlocking or other specific conditions set out in provincial regulations.

RRSP contribution room is not required for LIRA transfers

Transferring from a LIRA to an RRSP (or to a RRIF) is treated as a transfer between registered accounts, not as a new RRSP contribution. Because the money originally came from a pension and is moving between registered vehicles, you don’t need existing RRSP contribution room for the transfer, and the transfer itself is not a deductible RRSP contribution.

When can you unlock a LIRA?

You can unlock up to 50% of a LIRA and transfer it to an RRSP or RRIF after age 55. The process normally involves converting the LIRA to a life income fund (LIF) and applying to transfer the unlocked portion. That application typically must be completed within a specified period—check the provincial timelines and required forms with your financial institution to ensure the transfer is done correctly.

Should you unlock your LIRA? If so, when?

Unlocking some or all of your LIRA can increase flexibility in retirement planning. A LIF limits how much you can withdraw each year, while an RRSP or RRIF does not impose the same maximum withdrawal limits (RRSPs and RRIFs do have minimum withdrawal rules once converted to a RRIF). If you want the option to access larger sums, moving money into an RRSP or RRIF can help.

On the other hand, if you struggle to control spending or want to preserve a steady guaranteed income, leaving funds locked in a LIF may be preferable. For many people, the right time to unlock is when they plan to start taking a regular retirement income, because LIFs and RRIFs require minimum withdrawals based on age and the prior year-end balance.

Depending on your LIRA balance and provincial rules, you can move up to 50% to an RRSP via a LIF after age 55. If the remaining balance qualifies for a small-balance withdrawal, you may be able to transfer that portion as well, resulting in the full LIRA balance ending up in an RRSP and deferring minimum withdrawals until you convert the RRSP to a RRIF.

How to set up a LIF and RRIF

A LIF has both minimum and maximum annual withdrawal limits that change with age, while a RRIF has only a minimum annual withdrawal and no maximum. For maximum flexibility, consider these general guidelines:

1. Use the LIF first in your retirement income plan if you need to meet locked-in obligations, and move funds to RRSP or RRIF where appropriate to gain more withdrawal flexibility.
2. If you convert to a RRIF, basing the minimum withdrawal calculation on the younger spouse’s age can reduce required minimum withdrawals and lower taxable income.
3. If feasible, consider paying registered account fees from the LIF so other registered accounts like RRSPs, RRIFs, or TFSAs can grow uninterrupted. This can help preserve tax-advantaged balances for longer.

Should you transfer from your LIRA to an RRSP or RRIF?

Deciding whether to transfer to an RRSP or a RRIF depends mainly on whether you want immediate income. If you want to receive an income now, a RRIF is the logical choice. If you don’t need income yet and prefer to leave the money invested and growing tax-deferred, transfer to an RRSP.

If you choose a RRIF and later decide you don’t need the income, you can typically convert the RRIF back to an RRSP before the end of the year you turn 71, subject to rules in place at that time. Other advantages of a RRIF include:

1. RRIF income can qualify for the pension income tax credit starting at age 65.
2. There’s no withholding tax on the mandatory minimum RRIF withdrawal, which can help with tax planning (tax still applies when you file your return).
3. After age 65, RRIF income may be eligible for pension income splitting with a spouse, which can reduce combined household tax.

Final thoughts

In short: yes — in Ontario you can transfer up to 50% of a LIRA to an RRSP via a LIF, and in certain circumstances you may be able to unlock and transfer 100%, even without RRSP contribution room. Whether to move funds into an RRSP or a RRIF depends on whether you want to draw income now or keep the funds invested for later. Talk with your financial institution or a licensed advisor to confirm the provincial paperwork and timing required for your situation.

Allan Norman provides fee-only certified financial planning services through Atlantis Financial Inc. Allan is also registered as an investment advisor with Aligned Capital Partners Inc. He can be reached at atlantisfinancial.ca or [email protected].

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