How Business Owners Can Boost Retirement Savings with an Individual Pension Plan (IPP)

As a Canadian business owner or incorporated professional, planning for retirement goes beyond relying on your business value. An Individual Pension Plan (IPP) offers a strategic retirement tool, particularly beneficial for high-income earners aged 40 and above.

What is an IPP?

An Individual Pension Plan (IPP) is a defined benefit pension plan registered with the Canadian Revenue Agency (CRA). It is tailored for single members, such as business owners, and determines your retirement income based on factors like years of service, salary, and a predetermined rate of return.

Benefits of an IPP

Here are some key advantages of utilizing an IPP for your retirement savings:

1. Higher Contribution Limits
   IPPs typically allow for higher contributions compared to RRSPs, enabling you to save more for retirement and generate higher retirement income.

2. Ability to Make Up for Past Contributions
   With an IPP, you can make a lump sum contribution for periods of past employment where you didn’t have an IPP. This past service contribution can be amortized over several years or paid as a lump sum, significantly boosting your retirement savings.

3. Tax-Deductible Contributions
   Contributions made by your corporation to an IPP are tax-deductible, including annual contributions, lump sum catch-up contributions, and any plan-related fees. For example, while investment fees for an RRSP are not tax deductible, those for an IPP are.

4. Creditor Protection
   Funds invested in an IPP are protected from creditors, offering an additional layer of financial security.

5. Passive Investment Rules
   Business owners with passive investments can benefit from funding an IPP to avoid passive income tax rules for Canadian-Controlled Private Corporations (CCPC) and to remove shareholder equity from the business.

6. Flexible Retirement Income Options
   At retirement, you have several options for creating retirement income: purchasing a life or joint-life annuity, maintaining the IPP, or transferring the funds to a locked-in retirement account (subject to CRA rules).

7. Flexible Retirement Age
   You can choose to retire as early as age 55 or as late as age 71, providing flexibility in planning your retirement.

8. Investment Risk Management
   Periodic actuarial valuations and calculations assess the IPPs to determine if it is on track. If there is a deficiency, the company can make additional tax-deductible contributions to correct it.

9. Estate Planning
   Your spouse or common-law partner (CLP) is the beneficiary of an IPP, and in the absence of a spouse/CLP, you can designate another beneficiary.

Is an IPP Right for You?

An IPP is a powerful retirement savings tool for Canadian business owners and incorporated professionals, offering a way to significantly increase retirement savings and income. Consult with your financial advisor to review your specific situation and determine if an IPP is a suitable option for you.

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What To Do Next

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For more information, refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring Wealth by Jack Lumsden, MBA, CFP® or schedule a call with Jack at 905-332-4403