Why Business Owners Choose an Individual Pension Plan (IPP) over an RRSP
If you are concerned about the growth of your RRSP to fund your retirement, the Individual Pension Plan (IPP) could be as much as 65% larger than an RRSP. If you are an incorporated business owner over age 40 and have T4 income above $132,334 in 2012, the Individual Pension Plan (IPP) may be a smart alternative to a registered retirement saving plan (RRSP). The IPP is a defined benefit, DB, pension plan which benefits not only the traditional Canadian Controlled Private Corporation, CCPC, owner but also Personal Corporations which include owners such as doctors and dentists.
Other key benefits include the following.
- After age 40, the amount that can be deposited into an IPP exceeds the current maximum RRSP contribution. But there is another benefit than an RRSP cannot offer. The IPP is designed around a growth rate of 7.5% annually and therefore the business owner has a predetermined retirement benefit. Every three years the IPP is valued by an actuary and if the plan does not meet that return objective, the company tops it up by the underfunded amount. In an RRSP, there is no opportunity to top-up if a low or negative return is experienced.
- Assets in an IPP are 100% creditor proof so this is an added benefit for the business owner.
- The costs associated with an IPP are higher for an IPP than an RRSP due to the increased actuarial work and government filings, however, these costs are tax deductible to the company.
- Investment management fees are tax deductible in an IPP provided they are calculated separately as is the case for our fee-based platform. Investment management fees for an RRSP are not tax-deductible.
Do you want to learn more? I provide assessments based upon your personal corporate situation. I also meet with your accounant to ensure their questions are addressed. The concept is simple but set-up can be complex. I have over 10 years experience selecting IPP actuaries and investment managers to successfully implement these pension plans for clients. This is not a simple fill in the appication like an RRSP.
If you would like to understand if an IPP makes sense for you versus an RRSP, please contact me to discuss further and to request an information package.
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