Locked In DCPP Can Be Unlocked. Should I Unlock?

geokilla wrote: ↑ I switched employers and my DCPP has a locked in balance. According to Sun Life, I have the option to unlock my locked-in balance under the small benefit commutation provision. I tried searching this small benefit commutation provision and it looks like a small benefit rule? Not sure what it means but if I can unlock, I should take that option?

Either way, I'd like to transfer the money into my RRSP or TFSA and dump it all in XEQT. No more gambling with penny stocks and losing half the balance because I'm tired of that happening to me. There's also the option of keeping it locked in and transferring it into a LIRA, which I think is the best option for me as I'm not retiring for another 30 years. I don't think LIF, RPP, or life annuity makes sense.

My income tax bracket is very low and have tens of thousands in RRSP contribution room so I don't have to worry much about those two factors. My DCPP balance is 4 digits. My income for the year is expected to be about $50k.

spectre2016 wrote: ↑ Geokilla, I work in pension consulting so I can help you out in explaining this. Normally your DC account is “locked in” and must be used for retirement purposes only.

Since your DC pension account is below the “small benefits” threshold in your province your entitlement can be unlocked. Once “unlocked” you can use these assets for non retirement purposes.

If you unlock, you can transfer your account directly to an RRSP and it will not won’t affect your available RRSP room. Or you may unlock and take your account as cash, less withholding taxes. If you take cash you can transfer to your TFSA upon receipt of the funds if you have TFSA room.

The benefit of unlocking is that you have more flexibility with these funds now or at retirement.

There is no difference in the investing opportunities of a LIRA vs RRSP. However when you retire you will have less flexibility with the funds in a LIRA vs an RRSP. Further assets in an RRSP may be used for non retirement purposes if you choose (withdraw as cash/first time home buyers).

If you are unlocking and taking as cash, the amount will count as income in the year of receipt and you will pay income taxes on the amount. The pension plan will issue you a T4A for tax filing purposes.

geokilla wrote: ↑ Thanks I submitted the request to unlock. I didn't get the option of what to do with it once it's unlocked so I'll see what happens. I think putting it into TFSA is the best option since I'm in a lower tax bracket and got enough TFSA and RRSP contribution room. The general rule is to always max out TFSA first after all.

minimalist wrote: ↑ Did they form to unlock need to be notarized? Or witnessed by someone like a bank employee?