What You Need to Know About Locked-In RRSP Withdrawal Rules

A locked-in Registered Retirement Savings Plan (RRSP) is a retirement account made to hold pension funds that have been transferred from a former employer's registered pension plan.

Unlike a regular RRSP, a locked-in RRSP comes with strict rules that limit when and how funds can be accessed.

These restrictions are meant to ensure that the money remains available to provide retirement income, rather than being withdrawn prematurely.

You need to know the rules, or else you could suffer consequences. Improper withdrawals trigger penalties or tax consequences.

Not knowing how to navigate the regulations can lead to missed opportunities to access funds during financial hardship, medical emergencies, or upon reaching retirement age.

Awareness of the available unlocking options can help you make informed choices that align with immediate financial needs and long-term retirement planning.

Let's walk through and clarify the rules surrounding locked-in RRSP withdrawals, including how much you can withdraw under different conditions, the CRA's tax treatment of withdrawals, the eligible withdrawal age, and whether you can transfer funds into a regular RRSP.

What is a Locked-In RRSP?

A locked-in RRSP is a retirement savings vehicle that holds funds transferred from a federally regulated pension plan.

This is to make sure your funds are preserved specifically for retirement income and cannot be withdrawn freely like in a regular RRSP.

The main difference is in access: a regular RRSP allows contributions and withdrawals at the account holder's discretion, while a locked-in RRSP is subject to strict withdrawal conditions.

Other related accounts are:

• Locked-In Retirement Account (LIRA)
• Life Income Fund (LIF)
• Restricted LIF (RLIF)
• Restricted Locked-In Savings Plan (RLSP)

All of these are designed to hold pension-originated funds with varying rules on withdrawals and income payments.

These accounts fall under the Pension Benefits Standards Regulations, 1985 (PBSR), which establish the framework for when and how locked-in funds can be accessed.

The reason for these restrictions is to preserve pension benefits until retirement.

Locked-In RRSP Withdrawal Rules

Withdrawals from a locked-in RRSP are much more restricted compared to a regular RRSP.

Conditions under which unlocking/withdrawals are allowed:

• Financial hardship due to low income may allow limited withdrawals based on expected earnings.
• High medical or disability expenses can qualify you to unlock part of your funds.
• Non-residency status for at least two years allows withdrawal or transfer of the full balance.
• A physician-certified shortened life expectancy permits access to the entire locked-in amount.
• If you are age 55 or older with a small total locked-in balance, you may withdraw the funds.

Spousal consent rules and attestations:

• Spousal consent is required for unlocking due to financial hardship or small balances.
• Consent must be provided via a formal attestation before an authorized official.
• Spousal consent is usually not required for unlocking due to non-residency or shortened life expectancy.

Financial institutions process unlocking requests but do not have to verify the accuracy of information provided.

How Much Can You Withdraw from a Locked-In RRSP?

Withdrawal limits from a locked-in RRSP depend on the specific unlocking condition you qualify for.

Under financial hardship, you can withdraw up to 50% of the Year’s Maximum Pensionable Earnings (YMPE), which is $81,200 for 2025.

The exact amount varies on a sliding scale based on your expected income. The lower your income, the more you can withdraw.

Similarly, if you face high medical or disability expenses, you can unlock up to 50% of the YMPE regardless of income.

In other cases, the rules allow for full withdrawals.

If you have been a non-resident of Canada for at least two calendar years, you may withdraw the entire balance of your locked-in RRSP.

The same applies if a physician certifies that you have a shortened life expectancy due to a medical condition.

CRA Rules and Tax Implications

Withdrawals from a locked-in RRSP are considered taxable income in the year you take the funds out.

Any amount you withdraw must be reported on your income tax return and will be taxed at your marginal tax rate.

To cover some of this tax upfront, financial institutions are required to withhold a portion of the withdrawal amount as withholding tax.

For example, if you withdraw more than $15,000 outside Quebec, the withholding tax rate is generally 30%, although rates vary depending on the amount withdrawn and your province of residence.

It's important to distinguish between cash withdrawals and transfers to tax-deferred savings vehicles such as a regular RRSP or a Registered Retirement Income Fund (RRIF).

When funds are transferred directly between registered accounts under approved unlocking conditions, these transfers are not considered taxable withdrawals at that time.

If you withdraw cash, the amount is immediately taxable.

After making a withdrawal, you will receive a T4RSP or T4A slip from your financial institution, which details the amount withdrawn and any taxes withheld.

You must include this information when filing your tax return to properly report the income.

Under certain unlocking conditions like financial hardship or non-residency, you may transfer funds from a locked-in RRSP to a regular RRSP or RRIF.

These transfers allow you to defer taxes until you eventually withdraw funds from the new account, helping you manage your tax liability more effectively.

Locked-In RRSP Withdrawal Age

There's no set age that you can freely withdraw funds from a locked-in RRSP.

Withdrawals depend entirely on meeting unlocking conditions.

But there are some unlocking options available once you turn 55.

You may qualify for the small account balance unlocking if the total value of all your federally regulated locked-in accounts is less than or equal to 50% of the YMPE that lets you withdraw the full amount in your locked-in RRSP.

By the end of the calendar year you turn 71, you are required to convert your locked-in RRSP into a LIF or a RRIF.

After this conversion, you must start making minimum annual withdrawals to provide retirement income, with LIFs subject to maximum withdrawal limits.

Can You Transfer a Locked-In RRSP to a Regular RRSP?

Funds held in a locked-in RRSP cannot be transferred directly into a regular RRSP unless specific unlocking conditions are met, which we've gone over already.

When these conditions are met, the unlocked portion of the funds can be moved into a regular RRSP or a RRIF for greater withdrawal flexibility.

While transfers between registered accounts are usually tax-deferred, unlocking the funds to enable such transfers triggers a taxable event, meaning you'll owe income tax on the amount withdrawn.

Locked-in RRSPs have strict withdrawal restrictions compared to regular RRSPs, designed to preserve your pension savings until retirement.

Spousal consent and legal attestations are important to many unlocking scenarios, ensuring the rights of partners are protected.

It’s important to follow these legal requirements carefully to avoid delays or complications.

Before making any decisions about unlocking or transferring locked-in RRSP funds, it’s highly recommended to consult with financial advisors and legal experts.

Personalized advice can help you navigate complex rules and optimize your retirement income.

For official information, you can also visit the Canada Revenue Agency website and consult the Pension Benefits Standards Regulations, 1985.