LIF Life Income Fund

Before we dive into LIF accounts, you may want to first learn about Locked-In Retirement Accounts (LIRAs).

When you leave a company where you have an employer-sponsored pension, whether you left or you have been laid off, you have to transfer your pension entitlement into a LIRA or LRSP (Locked-in retirement savings plan). LIRAs/LRSPs, give you the flexibility to manage your portfolio during your working years.

With some exceptions, the money in your LIRA/LRSP cannot be withdrawn until you reach the age of retirement which is set by your regulator. Once you reach the age of retirement as prescribed by your federal or provincial regulator, you can begin withdrawing funds.

But before doing so, you have to convert your LIRA/LRSP into a LIF (Life Income Fund) or LRIF (Locked-in Retirement income fund) depending on your provincial regulator.

While there are rules governing the minimum and maximum amounts you’re allowed to withdraw every year, a LIF/LRIF/RLIF keeps you in control of how your money is invested, it keeps your assets tax-sheltered until you withdraw them, and provide pension income during the account holder’s retirement years.

You can diversify and build a portfolio by investing in one or more of the RSP-eligible products below:

• Stocks (both Canadian and foreign stocks)
• ETFs
• Mutual funds
• Bonds (including government, corporate, strip, and savings bonds)
• Gold and silver bars
• GICs
• Treasury bills (T-bills)
• Cash
• And more

Here are some key things you should know about LIF accounts:

• You cannot continue contributing to your LIF, but by managing your portfolio, your LIF could grow
• You must convert your LIRA/Locked-in RRSP into a LIF before December 31st of the year when you turn 71
• LIFs cannot be withdrawn all at once. Account holders must follow the annual income tax act which dictates the minimum and maximum withdrawal amounts based on your age. Tax is paid each year and only on the amount withdrawn
• Since income is taxed only when it's taken out of the plan, the tax deferral you enjoyed with your LIRA or locked-in RRSP continues in your LIF account
• You can designated beneficiaries in your Questrade LIF account
• Withdrawal rules for LIF accounts vary by province. To learn more about the specific regulations in your province, please visit the website of your provincial securities regulator or financial services commission.

If you’re a Quebec resident and receiving temporary income from a LIF, some conditions and terms apply:

1. Age 55 and over:
   • There is no maximum for withdrawals
2. Under age 55:
   • You must be under age 55 at the time the application for temporary income is filed
   • You must hold only one LIF (i.e. your LIF with Questrade)
   • Your income (such as salary, wages, interest or benefits) cannot exceed 50% of the maximum pensionable earnings for the year in which you are applying for temporary income
   • If you transfer funds, directly or otherwise, from another LIF to your Questrade LIF during a given year, the maximum amount of income that can be paid to you during that fiscal year may not change
   • If you wish to transfer all or some of the balance of your Questrade LIF and still receive from the LIF the income payment determined for the fiscal year, you must keep an amount in your LIF that is at least equal to the difference between the income payment determined for the fiscal year and the income you have already received from the LIF since the beginning of the fiscal year. For example, if you are to receive $5,000 from your LIF by the end of the fiscal year and you have received $1,500 to date, you must keep at least $3,500 in your LIF account
   • You can access Schedule 0.5 Regulation respecting supplemental pension plans.

For more information, go to the Retraite Québec website.

As of January 1, 2025:

• Funds cannot be directly transferred from a LIF to an RRSP, RRIF, or a VRSP.
• If you are age 55 and over:
  • You have a minimum withdrawal limit, but no maximum.
  • Small balance and non-residency unlocking categories are eliminated. For more information, go to the Retraite Québec website.
• If you are under age 55:
  • You have a minimum and maximum withdrawal limit.
  • The maximum withdrawal limit is subject to a new calculation.
  • The temporary income withdrawal limit is also subject to the new calculation.
• The calculation for estimating the amount of life income is D / T = N. This amount is provided for information purposes only and has no impact on the amount that can be withdrawn.

D represents the balance of the fund on the date of the estimate.

T represents the commuted value, at the beginning of the fiscal year of the fund, of the annual retirement pension of $1, payable on January 1 of each year included in the period from the beginning of the fiscal year to December 31 of the year in which the purchaser reaches 95 years of age.

That value is determined on the basis of the month-end, nominal interest rate earned on long-term bonds issued by the Government of Canada for the month of November preceding the beginning of the fiscal year, as compiled monthly by Statistics Canada and published in the Bank of Canada Banking and Financial Statistics, Series V122487 in the CANSIM system, by applying successively to that rate these adjustments:

1. The conversion of the interest rate referred to in element T, based on interest. compounded semi-annually, to an effective annual interest rate.
2. An increase of 1.10% of the effective interest rate.
3. The rounding of the effective interest rate to the nearest multiple of 0.25%.

The amount N may not be lower than the lower limit referred to in Légis Québec, section 20.2. In addition, for purchasers aged 95 years or over, element T is equal to 1.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.