Individual Pension Plans (IPP's)
Most people are familiar with the benefits of RRSP's which are defined contribution plans.
Contribution limits are set by Ottawa (currently 18% of prior year’s income
to a maximum of $22,000 for 2010). What is not determined is the income you may receive from an RRSP at retirement.
An Individual Pension Plan (IPP) is a defined benefit pension plan. It sets your monthly income at retirement based on your pensionable earnings for each year of service to a maximum which is currently $105,550. IPP’s are similar to RRSP’s in that they are sheltered from tax, contributions with pre-tax dollars, can be held in a brokerage account and dissolve into a income producing vehicle (LRIF, LIF or Annuity) at age 71. The similarities stop there.
The key benefits of Individual Pension Plans:
• 100% Creditor Protected, RRSP's are not
• Allows for larger tax deductible contributions - up to 65% more in contributions to you’re retirement assets
• If you have maximized your RRSP contributions, the IPP is an excellent way to increase retirement assets and make large contributions from your corporation, tax deferred
• May allow for lump sum contribution at retirement for additional funding to offset sale of assets of the company or sale of the company itself
• Safer investment rules and limitations (no more than 10% by cost value of any one company can be held in an IPP, etc.
• IPP’s requires contributions to be topped up if investment returns are insufficient (less than 7.5%)
• Provides the security of knowing exactly what you will receive at retirement
• Ability to "succession plan” if family members are working in the business
• Upon death, assets held under the IPP are payable to the plan member's spouse or, if there is no spouse, to another beneficiary or the plan member's estate. Surpluses can be held in the plan for the benefit of other members or are paid to the estate.
Who is the ideal candidate?
Small business owners, professionals and executives with the support of Management who are: 40-65 years of age, where the company is incorporated and the candidate is paid T4 income. If you do not qualify currently, RRSP’s are an excellent way to save for retirement while preparing to benefit from an IPP.