Q&A: Managing a LIRA

Question:– I’ve read a number of comments on LIRAs including in your excellent book The Retirement Time Bomb, but search as I may, I haven’t found the answer to a very simple question.

When I set up my LIRA in 1996, my then-advisor told me that I could pick just about any investment vehicle I wanted, but once that purchase was made, no further changes were allowed. I was wedded to that investment until the plan was converted at my retirement. Is this true, or am I actually free to buy and sell different qualified instruments within the plan just as I would with my personal RRSPs?

And if I’m allowed to ask a tag question: the funds for my LIRA came from a crown corporation RPP where I accumulated about three years of service. “Cashing out” of the plan gave me about $4,000, the total of my own contributions with nothing of my employer’s contributions. Assuming that I left a defined-benefits plan, do you think I made the right or the wrong choice to transfer to a LIRA? – Jeff H., ON

Gordon Pape’s answer: You are certainly allowed to make trades in a LIRA if you have a self-directed plan. If you don’t have one, you can switch. Ask the cpany that administers the plan.

As a general rule, I advise people who are members of a defined benefits pension plan to accept a deferred pension rather than transferring the money to a LIRA. A pension is guaranteed, especially if it comes from a Crown corporation. The return on a LIRA is not.

However, we are talking about such a small amount in your case that it probably does not matter. By the way, if you are 55 or older you can simply collapse the LIRA and withdraw all the money. Ontario allows this for very small plans. Of course, you’ll have to pay tax on the withdrawal. Check the website of the Financial Services Commission of Ontario for details.

Do you have a money question you’d like to ask Gordon Pape? E-mail it to [email protected] and then check our website every week to see if it was chosen for a response. Sorry, we cannot send personal answers.