Canadians who have funds "locked up" inside of federal life income funds (LIFs) will now have greater access to their money beyond the current annual maximum withdrawal limits. The 2008 federal budget proposes to allow individuals to access funds from their LIFs in three circumstances: small balances, financial hardship and one-time unlocking.
SMALL BALANCE WITHDRAWAL
Individuals who are at least 55 years of age with LIFs worth less than $22,450 (to be indexed to the average industrial wage) will be able to wind up their accounts and convert them to another tax-deferred savings vehicle, such as a Registered Retirement Savings Plan or Registered Retirement Income Fund.
FINANCIAL HARDSHIP WITHDRAWAL
Any LIF holder, regardless of age, facing "financial hardship" (low-income individuals or individuals with high disability or medical-related costs) can unlock up to $22,450 (also to be indexed).
ONE-TIME UNLOCKING
In perhaps the most dra-matic change, the 2008 budget proposes to allow individuals who are at least 55 years of age to "unlock" up to 50% of their LIF holdings and transfer the funds into another tax-deferred savings vehicle, such as an RRSP or RRIF, where there are no annual maximum withdrawal limits. This one-time unlocking provision follows similar moves in recent years among the provinces.
Alberta and Manitoba also allow a 50% one-time unlocking while New Brunswick and Ontario allow 25% to be unlocked.
Only Saskatchewan has moved to a 100% unlocking system.