Individual Pension Plan
An IPP is a retirement planning solution that should be considered for business owners and senior executives who have already maximized their RRSP contributions. It is an excellent source of greater pension benefits along with significant tax advantages.
IPPs are designed for executives, business owners, and professionals with professional corporations. They are unavailable to non-incorporated individuals or partners of professional firms who are unincorporated, such as lawyers and accountants.
An IPP is a Defined Benefit Plan where the corporation makes contributions on behalf of the business owner or key employees. The IPP is tailor-made to the individual member, making it easy to customize the plan to meet specific needs. Assets are locked-in until it is time to start drawing on them for retirement income.
The typical profile of someone who can benefit from an IPP:
- 40 years of age or older
- $100 000 or more of T4 income
- Worked for the same company for at least 5 years (some exceptions)
- Maximized RRSP/Defined Contribution Pension Plan contributions (some exceptions)
- Have the necessary corporate earnings to expense the pension contributions
Key Advantages of the IPP include:
- Tax Deductibility - contributions are deductible at the corporate level
- Creditor Protection - IPPs are structured using a trust, which means that they cannot be accessed by creditors
- Potential Guaranteed lifetime income to participants and spouses
- Current Service Funding - Opportunity to make larger contributions than current RRSPs
- Past Service Funding - Opportunity to make a one-time significant contribution at the set-up of plan (actuarial calculation). The past service funding requires a qualifying transfer from your RRSP (actuarial calculation).
- Final Funding Contribution - A potential exists whereby a significant final funding opportunity can be made when you decide to retire. Prior to age 65, it allows you to top up the pension plan. After age 65, you can also purchase full indexing of the pension plan (actuarial calculation).
- Succession Planning - An IPP provides the unique opportunity to potentially roll over the benefits to children of the plan owner on a tax-deferred basis as long as they are actively working and receiving T4 income from the business. In a traditional RRSP, there would be no opportunity for a rollover to the children, as the proceeds would be taxed before reception.