Individual Pension Plan - A Supersized RRSP
An Individual Pension Plan (IPP) is a Defined Benefit Pension Plan that is established for the benefit of one individual, namely a business owner or corporate executive. The IPP enables these individuals to save significantly more on a tax-deferred basis for their retirement then compared to a Registered Retirement Savings Plan (RRSP).
In effect, an IPP is a Supersized RRSP. Unlike an RRSP however, the annual amount that can be contributed to an IPP is not based solely on the individual’s income level. Rather, the tax-deductible contributions to an IPP are determined by income, age, and years of service. The result; the older the owner or executive gets, the more that can be contributed on a tax-deferred basis.
Who Qualifies for an IPP?
To qualify for an IPP you must:
- Have an employee / employer relationship with the sponsoring corporation
- Have employment (T4) income
- Be at least 40 years of age
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Have employment income over $100,000 per year
IPP Advantages over RRSP
- Much higher annual tax-deductible contributions
- Contributions and cost associated with funding the IPP are tax-deductible to the corporation
- Guaranteed lifetime retirement income
- Creditor proof retirement assets
- Opportunity to fund past service
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Ability to make additional contributions if investment underperforms its targeted return (7.5%)
IPP Disadvantages
- More stringent investment requirements
- Higher maintenance costs
- More complex structure
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Over funded pension benefits revert back to the sponsoring corporation
For the right candidates however, the benefits provided by an IPP far exceed any drawbacks they might present. While not for everyone, an IPP can provide successful business owners and executives with a much higher and more predictable retirement income.
To learn more about an Individual Pensions Plan, or to obtain a personalized IPP quote please contact David Mason.
