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Difference Between LIRA and Locked-In RRSP

LIRA vs Locked-In RRSP

Retirement is something everyone should prepare for. It is an inevitability that should be accepted regardless of where you are located or what your livelihood is. Thus, it would be best that one has money invested in a plan, funds that an individual can enjoy during their post-retirement years. Canada is one of the countries with the most comprehensive, versatile, and well-distributed retirement plans available to its citizens. Among them are the Locked-In Retirement Account (LIRA) and the Registered Retirement Savings Plan (RRSP). However, there are significant differences between these two plans that a potential holder or investor should know.

The Locked-In Retirement Account (aka LIRA) is a Canadian investment account whose purpose and function is to hold locked-in pension funds. As in most retirement accounts or plans of its type, LIRAs are for accumulating funds to be used at retirement. LIRAs are subject to provincial jurisdiction and regulation for funds legislated in: Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, and Newfoundland. As the terms imply, these accounts or plans are “locked”; the account holder does not have freedom to use it until it reaches maturity or requirements are met, which is usually upon retirement or reaching a certain age (depending on what was agreed upon). An employee who has a Registered Pension Plan (RPP) whose membership in the plan is terminated prior to retirement for whatever reason must transfer the accumulated funds to a LIRA. Should the employee experience death prior to retirement, the funds will be transferred to the surviving spouse and transferred to a LIRA as well. Finally, if a marriage or common law partnership is dissolved wherein a partner has an RPP, the division in the divorce will also transfer the accumulated funds to a LIRA, which will hold said funds until retirement is reached.

Taxes on the interest earned in a LIRA are deferred until the point funds are withdrawn. When retirement age is reached, which is usually 55 in the areas where LIRAs are used, the holder has the option to transfer the funds to other retirement income plans such as an LIF, LRIF, or PRIF. However, it becomes mandatory if the holder reaches 71 and has not transferred it by the end of the year upon reaching that age.

Another type of Canadian account for keeping and managing assets and funds is the Registered Retirement Savings Plan (or RRSP). This plan was introduced in the year 1957 whose main goal is the promotion of accumulating funds come retirement age for employees. It is subject to the mandate of Canadian Income Tax laws, which cover the maximum contribution, when contributions are taken, what forms of assets are acceptable for contribution, and finally, how it will be converted into a Retirement Income Fund (RIF). In these terms, it is very similar to the previously discussed LIRA. RRSPs can be opened as an Individual, Spousal, or Group plan. RRSPs are available and subject to the federal jurisdiction of Canada.

However, there are significant differences between a LIRA and RRSP. Unlike the LIRA, by dedicating a portion of an employee’s income into one under Canadian regulation, RRSPs reduce the taxes owing for a holder per annum (instead of only being deferred until withdrawn). This reduction in income tax is significantly decreased. Another notable difference is that an RRSP is “liquid” and is not “locked” as in the case of a LIRA. This means the holder is not limited to waiting for the plan to mature. The holder of an RRSP can choose to withdraw from the fund early for whatever needs that may arise (within what is stipulated from the agreement when the plan was opened).

A person will be wise to invest in either a LIRA or an RRSP to prepare for the inevitability of retirement. However, one should take note of what the differences are and which will be best for their potential needs and future plans.


1.Locked-In Retirement Account (LIRA) and the Registered Retirement Savings Plan (RRSP) are plans available for Canadian citizens for their retirement.
2.Both the LIRA and RRSP have to be opened before the age of 71, at which point the funds will be transferred to a Retirement Income Fund (RIF).
3.LIRAs only defer taxes until withdrawn; RRSPs reduce a holder’s income tax per annum.
4.LIRAs are “locked”; the holder cannot use the funds until it matures or meets a certain event (as in the case of the holder’s death). On the other hand, RRSPs are liquid, giving freedom for the holder to utilize the funds (within certain parameters).
5.LIRAs are within provincial jurisdiction; RRSPs are under federal jurisdiction.

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1 Comment

  1. The article is titled “Difference Between LIRA and Locked-In RRSP” but you didn’t answer the question or even mention LRSP’s

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