Retirement Planning for Small Business Owners


Ask a small business owner what their business plans are for the next two to five years and they will be able to articulate their projected growth in sales, and new markets they are hoping to expand into, etc. The response is often different if you ask about their retirement plans.


One of the best ways to start a retirement plan is to make regular RRSP contributions that allow your retirement savings to grow in a tax-sheltered environment.


Many small business owners choose to receive their remuneration in the form of dividends because of the lower tax rate on dividends, but we caution that you shouldn't forego a salary in favour of dividends just for the tax savings; instead, determine the optimal salary/dividend mix that will minimize both corporate and personal income tax, and maximize RRSP and CPP/QPP contributions.


An Individual Pension Plan (IPP) is an attractive alternative to an RRSP for owner-managers 45 years of age or older. An IPP is a defined benefit pension plan for owner-managers and their spouses. The corporation makes tax-deductible contributions to the IPP based on actuarial valuations and, in return, the member receives a guaranteed lifetime pension at retirement.


An IPP is not inexpensive to set up and maintain; however, it allows a small business owner to make larger contributions than through an RRSP and thus increase retirement assets. As well, the assets within the IPP are creditor proof.While it's not unusual to expect income from the future sale of a business, small business owners must consider the potential for fluctuations in value over time. What is considered a growth industry today might not be so in 20 years.


You've worked too hard to leave your financial future to chance. Make your retirement plan a top priority. Talk to your BMO Nesbitt Burns Investment Advisor about developing your plan.