The best way to unlock a LIRA early

This post originally appeared at MoneySense. It was updated on Aug. 12, 2016 to clarify that LIRA rules vary depending on which province you live in.

Q: I have two locked in LIRAs with my bank—one for $36,000 and another one for $18,000, each from past employers. I live in Nova Scotia and am 46 years old. I have been unemployed for two years now and am having trouble meeting my mortgage payments. Is there any way to access this money before age 55 and if so, what would be my best strategy?

—Blair Rudderham, N.S.

A: A Locked-In Retirement Account (LIRA) is an RSP with restrictions on accessing the funds before age 55. There are financial hardship provisions to access these funds early:

• low expected income
• payment of first and last months’ rent
• arrears of rent or debt secured on a principal residence (such as a mortgage)
• medical expenses

In Nova Scotia, Blair can apply for a financial hardship reprieve to the Nova Scotia Finance & Treasury Board using Form 12, given his income is expected to be below $36,600 over the next 12 months. Blair would declare his arrears in mortgage payments and declare his total expected income. The amount unlocked would be no more than $27,450 and would be reduced by 0.75 times his total expected income.

Once approved, applicable tax will be withheld as if Blair withdrew funds from an RSP. Blair cannot re-apply for further fund access for 12 months. Hopefully, Blair’s outlook for income will improve so he can meet his lifestyle needs, keep up with mortgage payments and recover the savings that were lost.

Remember that the unlocking provisions for LIRAs fall under provincial jurisdiction and are slightly different from province to province. Taxtips.ca does a good job of describing these different unlocking rules in each province.

Tom Feigs is a fee-for-service financial planner, money coach and retirement planning expert based in Calgary, Alberta.

Editor’s note: A reader points out that Blair’s LIRAs may not be resident in Nova Scotia, even if he lives there. And each LIRA could have a different residence. He should confirm the jurisdiction with the institution holding the funds.

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