Jared Pilon
You’ve spent years growing your company and building financial security. But are you maximizing your retirement savings? If you're over 40, an Individual Pension Plan (IPP) could be a smart strategy to help you secure your financial legacy while reducing your business taxes.
We’ll break down what an IPP is, how it compares to an RRSP, and whether it’s the right choice for you.
What Is an Individual Pension Plan (IPP)?
An Individual Pension Plan is a defined-benefit pension plan for business owners, incorporated professionals, and key corporation employees. Unlike an RRSP, which has contribution limits based on a percentage of income, an IPP allows for higher tax-deductible contributions, especially as you age.
Your corporation can set up an IPP with the help of:
Your Accountant
They ensure compliance with tax laws and maximize deductions.
An Actuarial Team
They manage the required reporting and periodic plan reviews.
A Wealth Advisor
They oversee investment strategies to grow your pension effectively.
How Does an IPP Compare to an RRSP?
Many business owners use Registered Retirement Savings Plans (RRSPs) as their primary vehicle for retirement savings. While RRSPs have their own benefits, IPPs offer distinct advantages for certain situations.
| Feature | IPP | RRSP |
|---|---|---|
| Contribution Limits | Higher for those 40+ | 18% of income, capped annually |
| Tax Deductibility | Contributions made by the corporation, reducing taxable income | Personal contributions reduce taxable income |
| Creditor Protection | Assets are protected from creditors | Assets may not be protected in bankruptcy |
| Employer Contributions | Allowed, making it a corporate tax deduction | No employer contributions |
| Long-Term Growth |
Higher tax-deferred growth potential |
Growth limited by personal contribution limits |
Should You Consider an IPP?
For the right business owners, an IPP is an excellent option. You should know your options when optimizing your wealth management through tax strategies. An IPP will work for you if:
- You are over 40 years old (IPP benefits increase with age),
- You have a stable, incorporated business generating consistent revenue,
- You pay yourself a T4 salary of at least $100,000,
- You have excess corporate cash flow available for contributions,
- You want creditor protection for your retirement savings.
It should be noted that an IPP would not work under its current rules if you pay yourself dividends instead of salary. However, transitioning to a salary structure could open the door to this tax-saving opportunity.
How an IPP Can Reduce Your Business Taxes
One of the most significant advantages of an IPP is that contributions are tax deductible by your corporation, reducing your taxable business income. Here’s how it works:
- Your business makes tax-deductible contributions to your IPP.
- These contributions grow tax-free until retirement.
- Unlike holding passive investments in a corporation, which may trigger higher taxes, an IPP ensures tax efficiency.
- If you sell your business, the IPP remains protected and can provide income throughout retirement.
Planning for the Future: Business Succession & Estate Benefits
Many business owners use IPPs as part of their long-term succession strategy. Since an IPP is structured as a separate entity from your business, it remains intact even if you sell or wind down your company.
IPPs also allow for spousal income splitting, reducing overall family tax burdens in retirement. In the event of your passing, your spouse can inherit the plan tax-free, ensuring continued financial security.
Key Considerations Before Setting Up an IPP
While IPPs offer significant benefits, they do come with specific requirements.
Regulatory Oversight
IPPs must comply with CRA regulations, including triennial actuarial reviews.
Administrative Costs
There are setup and maintenance fees, but the tax savings generally outweigh such costs.
Long-Term Commitment
Unlike RRSPs, an IPP works best as a long-term retirement solution.
How to Get Started with an IPP
If you’re interested in setting up an IPP, the first step is to consult with your accountant and wealth advisor. We can help you evaluate whether an IPP is the right fit and guide you through the setup process.
Steps to Setting Up an IPP
- Review your salary history – You need a consistent T4 income for an IPP to be viable.
- Assess your business cash flow – Ensure your company can support the contributions with your accountant.
- Consult with an actuarial team – They will design your plan and file the necessary CRA documents.
- Work with a wealth advisor – They will help you select investments to maximize long-term pension growth.
- File required tax documents – Ensure all contributions are accounted for correctly.
Is an IPP Right for You? Consult With the Experts
For small business owners over 40, an Individual Pension Plan can be a successful tax-saving and wealth-building tool. By leveraging corporate dollars, maximizing tax deductions, and ensuring creditor protection, an IPP offers financial security that an RRSP alone may not provide.
If you think an IPP could be a smart move for your retirement, contact Legacy Accounting LLP. We are here to help you confidently navigate your tax and financial planning. Call 403-343-7707 or email to schedule your appointment today.
If you are in need of a wealth management resource, we recommend you contact Kit Richmond at MacDougall Wealth Management Group. You can reach out to Kit at 403-754-1056 or to find out how to invest with your IPP the right way.
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Posted: 2/13/25
