If you’re a high-bracket professional, executive, or businessperson, and you’ve maxed out your RRSP, you may be surprised to learn that there are other tax-efficient retirement plans available that let you enhance your retirement saving. One of the best is the Individual Pension Plans (IPP), which is in fact an excellent way to increase your retirement nest-egg, while having your company make large tax-deductible contributions.
An Individual Pension Plans is like having a group plan, but it’s designed specifically for individuals in the highest tax bracket. If you’re a professional, executive, or business owner, and you’ve maxed out your Registered Retirement Savings Plan (RRSP) contribution room and (in the case of executives) any employer pension contributions, then an IPP might be the right solution for enhancing your retirement income stream.
Like an RRSP, an IPP is an investment account that accumulates over time to provide retirement benefits. But like a pension plan, the IPP provides certain guarantees. In addition, any amounts you contribute are locked in until you retire. And like a regular pension plan, IPP contributions are determined by actuarial calculations to provide sufficient income at retirement. From a business standpoint, IPPs are also attractive, because plan assets are 100% creditor-proof.
Key benefits
Perhaps the most important benefit from a longer-term retirement savings standpoint is that for a business owner or executive over 40, an IPP allows for larger tax deductions than RRSPs – and up to 65% more in contributions into your retirement account.
In addition, if you have maximized your RRSP contributions, an IPP is an excellent way to increase retirement assets and have your company make large tax-deductible contributions. An IPP also allows a significant tax-deductible contribution at retirement.
As a defined benefit pension plan, Individual Pension Plans operate with stricter investment rules and limitations than, say, RRSPs or TFSAs, and provide pre-determined retirement benefits
Should the rate of return on plan assets be less than 7.5% a year, and IPP allows for additional tax-deductible contributions to be made by the company. Pension plan surpluses belong to the member. And there’s no deemed disposition of plan assets on death of the planholder, making it a powerful estate-planning tool.
As true defined benefit pension plans, Individual Pension Plans are federally regulated and are technically complex, requiring special expertise in set-up and administration. This is definitely not a do-it-yourself process. You’ll need the help of a qualified IPP specialist to guide you through the steps of setting up an IPP.
Courtesy Fundata Canada Inc. © 2015. Robyn Thompson, CFP, CIM, FCSI, is president of Castlemark Wealth Management. This article is not intended as personalized advice.
