2025 Guide: What Happens to Your Locked-in Retirement Account (LIRA) After Death and Its Value

When it comes to your Locked-in Retirement Account (LIRA), understanding what happens after your passing is essential. Contrary to its name, your LIRA is no longer locked once you die.

In Canada, the rules governing LIRAs are clear and consistent. If you pass away before retirement age, your LIRA balance typically transfers to your spouse or common-law partner. However, if you and your partner were living separately, they may not be eligible to receive the death benefit. Without a spouse or common-law partner, the funds go to a designated beneficiary or, if none exists, to your estate.

Key Points to Remember

• LIRAs are designed to safeguard pension funds for former pension plan members or their beneficiaries across Canada.
• Death benefit rules for LIRAs are largely uniform nationwide.
• LIRAs generally cannot be moved out of the province where they were registered.
• Upon death, LIRA funds become accessible and can be paid out as cash or transferred to another registered retirement fund.

How LIRAs Function in Canada

You can open a LIRA at any age, funded by transfers from a registered pension plan (RPP). These accounts hold pension funds for former members, ex-spouses, or surviving partners.

Unlike Registered Retirement Savings Plans (RRSPs), which allow withdrawals anytime, LIRAs are "locked-in" until retirement or death, ensuring funds remain reserved for retirement income.

Important Consideration

If you and your spouse or partner separated before your death, and lived apart, they may not qualify to receive your LIRA balance.

Death Unlocks Your LIRA

Upon death, the restrictions on your LIRA lift. Death benefits can be paid out as cash or transferred to the beneficiary's own RRSP or Registered Retirement Income Fund (RRIF).

If the LIRA balance originated from another person's pension benefit, death benefit rules may differ.

Provincial regulations vary slightly but generally prevent transferring a LIRA outside its registered province.

If Your Beneficiary Declines the Death Benefit

Your spouse, partner, or beneficiary can waive their right to the death benefit by first receiving all necessary information from the plan administrator and signing a waiver. In this case, the LIRA balance passes to your estate.

Understanding Locked-in Retirement Accounts (LIRA)

A LIRA is a Canadian retirement account holding funds transferred from a pension plan. These funds are "locked-in," meaning they cannot be withdrawn until you reach retirement age (usually 55) or upon death, when they become accessible.

Can You Unlock Your LIRA Early?

Yes, but typically only upon reaching age 55 or retirement, with some exceptions. Once unlocked, you must either purchase a life annuity or transfer the funds into a Life Income Fund (LIF) to access your money.

The 50% Unlocking Rule Explained

Depending on your province, you may unlock up to 50% of your LIRA balance at age 55 and transfer it to an RRSP for more flexible use.

LIRA vs. RRSP: Which is Better?

While a LIRA is a type of RRSP, it offers less flexibility since funds are locked until retirement. RRSPs allow withdrawals at any time, although taxes and withholding apply. Additionally, RRSPs offer special programs like the Home Buyers’ Plan and Lifelong Learning Plan for interest-free loans.

Final Thoughts

In summary, your LIRA funds become accessible upon death and will be distributed to your spouse, partner, beneficiary, or estate based on your circumstances. Understanding these rules helps you plan effectively for your retirement legacy.

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