DCPP - NON Locked In Portion (MB)
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Thread: DCPP - NON Locked In Portion (MB)

  1. #1
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    Question DCPP - NON Locked In Portion (MB)

    We currently had a friend leave her employer. From her DCPP she was given a few options for her Locked-in, RRSP and Non Locked-in money.

    Her questions was -

    How does the non locked-in portion affect her RRSP Contribution Limits. If she transfers it to a new RRSP, 1).Does it count as a new contribution? 2). Does it decrease her contribution limit. 3). If she takes it in cash does she get taxed on this money?

    Thank you.


  2. #2
    Senior Member heyjude's Avatar
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    Your friend should first check out the Manitoba government's pension webpage.

    http://www.gov.mb.ca/labour/pension/...unlocking.html

    From the webpage:

    "Locked-in Retirement Account (LIRA) is an investment that allows your money (pension benefits) to continue to grow and accumulate interest while being held (or locked in) in the fund until you retire. LIRAs replace locked-in, Registered Retirement Savings Plans (RRSPs), although they operate in the same way. A LIRA is a RRSP that is governed by the Manitoba act and holds locked-in pension funds until they are used for retirement.
    Life Income Fund (LIF) is an investment that pays an adjustable amount of retirement income to the LIF owner, based on prescribed annuity factors. It must be at least the minimum amount stated in the federal Income Tax Act and the maximum amount stated in the regulations under the Manitoba act.
    Manitoba locked in money means locked in money or funds earned by plan members working in Manitoba just before they terminated their membership in a pension plan, retired, died or separated, which was transferred from the pension plan to a LIRA or LIF, and is subject to the act and regulation.
    Plan member/owner is a former member of a pension plan who transferred funds to a LIRA or LIF.
    (Prescribed) Registered Retirement Income Fund (RRIF) is a personal retirement income fund that is governed by the federal Income Tax Act (Canada). A prescribed RRIF is the same as a RRIF but is subject to certain rules under the act and regulations. Funds in a prescribed RRIF are not locked in.
    Registered Retirement Savings Plan (RRSP) is a personal retirement savings plan governed by the federal Income Tax Act."

    In answer to your questions:

    How does the non locked-in portion affect her RRSP Contribution Limits?

    I don't believe it does.

    If she transfers it to a new RRSP

    1).Does it count as a new contribution?

    No, because she can't transfer it to a new RRSP. My understanding is that she has to transfer it to a LIRA, or Locked In Retirement Account. If she is 55, or when she reaches that age, she will have a one time opportunity to convert 50% of that LIRA to a PRIF, or Prescribed Retirement Income Fund. Funds in the PRIF can be withdrawn as she sees fit. The remaining 50% is then converted into an LRIF, or Locked-In Retirement Fund. This behaves exactly like an RRIF.

    2). Does it decrease her contribution limit.

    No, because it is not an RRSP. If she starts a new job, she will have an RRSP contribution limit assigned on the basis of her earnings.

    3). If she takes it in cash does she get taxed on this money?

    Of course. Every dollar withdrawn is taxed as ordinary income. Withholding rules also apply.

    For what it's worth, I have been through this exact scenario in Manitoba and I have all the accounts I have mentioned above.
    Last edited by heyjude; 2017-04-16 at 07:43 PM.

  3. #3
    Senior Member Beaver101's Avatar
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    ^ Agree with all your answers above but what I don't understand from OP's thread title is how can there be a non-lockedin portion in a DCPP? And that the OP's friend have multiple options to take from a DCPP = Defined Contribution Pension Plan?
    Everyone should be respected as an individual, but no one idolized.-A. Einstein

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  5. #4
    Senior Member heyjude's Avatar
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    Quote Originally Posted by Beaver101 View Post
    ^ Agree with all your answers above but what I don't understand from OP's thread title is how can there be a non-lockedin portion in a DCPP? And that the OP's friend have multiple options to take from a DCPP = Defined Contribution Pension Plan?
    I wonder if there is confusion with a company RRSP contribution?

  6. #5
    Senior Member Beaver101's Avatar
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    ^ Could be and that there is a RRSP account aside from the DCPP.
    Everyone should be respected as an individual, but no one idolized.-A. Einstein

  7. #6
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    Quote Originally Posted by heyjude View Post
    Quote Originally Posted by Beaver101 View Post
    ... I don't understand from OP's thread title is how can there be a non-lockedin portion in a DCPP?
    And that the OP's friend have multiple options to take from a DCPP = Defined Contribution Pension Plan?
    ... I wonder if there is confusion with a company RRSP contribution?
    Or possibly the employer contributed a set percentage (which has to be locked in) while the employee contributed a percentage (maybe this is a direct transfer to an RRSP?). As well, I have heard of DC pensions where one can sign up to add additional funds beyond the set percentages, which I suspect would also count as "non-locked in".

    As it is not non-locked, that portion could be taken as a withdrawal (plus be reported as income).


    Without the details - it is hard to do more than guess.


    Cheers


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