How to Access Locked in money within an RRSP

Locked in RRSP

Money that is in a locked in RRSP or other retirement investment usually comes from employer contributions to the employee pension plan.  When the employee quits or is dismissed from the employer the money that has been contributed to the pension plan transfers to a locked in RRSP or similar plan.

The reasoning behind this transfer rather than to a normal RRSP is that the funds will be there upon retirement.  The governments created this pension legislation to protect the employee’s investments for when they retire.  In doing so the locked in funds are typically paid out on a regular basis after a certain age similar to a pension; this age and frequency of withdrawal as well as the maximum and minimum withdrawal change based on which province the individual lives in.

There are different ways to access the locked in money and the amount that can be accessed varies by province.  With the strict regulations and rules pertaining to the locked in money the governments also allow a few methods prior to retirement that will access the money.  At any age of the individual the money can be accessed if the individual no longer resides in Canada for 2 calendar years and is not employed by the employer.

The money can also be accessed if the individual is diagnosed with a shorter than expected life expectancy.  This can be for either a physical or mental disability and must be certified by a physician.  The amounts that can be withdrawn with the non-residency or life expectancy the amount of withdrawal are 100%.  The final reason the money can be unlocked early is if the individual comes upon financial hardship.

There are limits to how much money that is available to withdrawal when the individual qualifies for financial hardship.  The individual is allowed to withdrawal money on a sliding scale based on the amount of yearly maximum pensionable earnings; which is the amount that an individual earns that they still contribute to Canadian Pension Plan (CPP).

This amount can be up to 50% of the yearly maximum pensionable earnings if the expected income for the year is going to be $0 to no withdrawal if the expected earnings are going to be greater than 75% of the pensionable earnings.

After the individual reaches the age of 55 or it may be a different age depending on the province they live in they may make a one-time withdrawal of up to 50% of the locked in money.  This amount is up to 50% of the balance at the time of the withdrawal not of the amount contributed.

This can be done the year the individual turns 55 or any year subsequent to that, this is a one-time withdrawal and if the individual withdraws an amount less than 50% they may not make another withdrawal of the rest of the limit.  The other reason the individual may make a withdrawal after the age of 55 is if the balance is less than 50% of the yearly maximum pension threshold.