How to decide if a LIRA is right for you
A Locked In Retirement Account (LIRA) is a type of savings account designed to hold and manage retirement savings that have been transferred from a defined benefit pension plan. To decide if a LIRA is right for you, it's important to understand how LIRAs work and the potential benefits and drawbacks of this type of account.
A LIRA is a savings account that holds funds that have been transferred from a defined benefit pension plan. LIRAs are typically offered by financial institutions, and the funds in the account are invested in a variety of assets, such as stocks, bonds, and mutual funds.
The funds in a LIRA grow tax-deferred, and the individual can withdraw the funds when they reach a specific age, typically 55 or 65.
One of the main benefits of a LIRA is that it provides protection for retirement savings. The funds in a LIRA are locked in, which means that they cannot be withdrawn or accessed until the individual reaches the specified age. This can help to ensure that the funds are available for retirement and are not depleted before the individual is ready to retire.
Another benefit of a LIRA is that the funds in the account can grow tax-deferred, which can help the individual's savings to grow faster. In some cases, the government may also provide matching contributions to a LIRA, which can further increase the individual's savings.
However, there are also potential drawbacks to a LIRA. For example, the funds in a LIRA are typically not accessible until the individual reaches the specified age, which means that the individual may not be able to access the funds if they need money for an emergency or other unexpected expenses.
Additionally, the investment options in a LIRA may be limited, which can limit the potential for growth of the funds in the account.