Wealth Update – Making the Most of Strong Markets and LIF Maximums

Here’s an interesting wrinkle with LIFs that maybe you can use with your clients. 

If your client has a LIF that started its life as a pension in B.C., Alberta, Manitoba, Ontario, and Newfoundland and Labrador, you have the opportunity to unlock some of this money.  

If the LIF had very good returns in 2024, the pension regulations in these provinces allows the difference between the minimum LIF and maximum LIF payment to be transferred to an RRSP or RRIF. Why are good returns relevant? The LIF maximum percentage for the year is the greater of the legislated maximum and the prior year’s returns.

For example, the LIF withdrawal limit for someone aged 55 is 6.51% in these four provinces, and the S&P/TSX Composite Index returned 18% in 2024 — a difference of 11.49%.

Clients are typically required to withdraw an annual minimum from a LIF (2.86% for someone aged 55), and they can transfer the excess (18% – 2.86% = 15.14% in this example) or any portion of the excess to their RRIF or RRSP (if they are under the age of 71). This tax-free direct transfer requires no contribution room, and it gives clients greater flexibility with their registered assets: RRSPs have no minimum or maximum annual withdrawals, and RRIFs have only the annual minimum withdrawal.

To make it happen, prepare a letter of direction for the transfer from the LIF to the RRSP or RRIF. Then, a T2030 or T2033 direct transfer form (for transfer to an RRSP or RRIF, respectively) is filled out.

And, probably good not to request LIF maximum when setting up a LIF. This could result in a client getting a very large payment when they don’t need it. Plus, it could upset some income tested benefits like OAS. If the client needs more money, send the excess over the LIF maximum to their RRSP/RRIF where a partial withdrawal could be made to meet income needs.

Using this obscure feature for a LIF client will demonstrate your understanding of the rules and the value you bring.

Make sure you double check which province the LIF is governed under before doing any paperwork.