What is an IPP?
An Individual Pension Plan (IPP) is a defined benefit pension plan designed for incorporated business owners and professionals. It allows for higher tax-deferred retirement savings compared to an RRSP.
Who can setup an IPP?
An IPP is ideal for individuals who:
- Own a corporation or are incorporated professionals
- Are over the age of 40
- Have an annual T4 income exceeding $100,000
- Seek a tax-efficient retirement strategy
Benefits of an IPP for small business owners and employees
- Tax Deductions: Contributions made by the corporation to the IPP are tax-deductible, reducing the company’s taxable income.
- Capital Gains Tax Reduction: IPPs reduce the business’s taxable value, lowering capital gains tax when selling the business.
- Transfer to Spouse at Death: Upon the owner’s death, assets within the IPP can be transferred to a spouse’s pension or RRSP, ensuring tax efficiency.
- Lump-Sum Contribution at Plan Setup: Business owners can make a large past service contribution when starting the IPP, reducing taxable income.
- Lump-Sum Contribution Before Selling the Business: Additional contributions (terminal funding) can maximize pension benefits and lower corporate taxable income.
- Creditor Protection: IPP assets are safeguarded from creditors, unlike RRSPs in some provinces.
FAQs about IPP
- How does an IPP differ from an RRSP?
An IPP provides a guaranteed retirement income, whereas an RRSP depends on investment performance. - Can family members be included?
Yes! If they are employed by the corporation and receive T4 income, they can participate. - What happens to the IPP upon retirement or death?
Retired members receive lifetime pension income.
Upon death, benefits can transfer to a spouse’s pension or RRSP. - Can I still contribute to an RRSP if I have an IPP?
RRSP contribution room is reduced due to pension adjustments. - Are there administrative requirements?
Yes. IPPs require actuarial reviews, corporate filings, and ongoing plan management.
IPP vs. RRSP Contribution Limits
