|Yes, it is possible to get up to 65% more into your retirement savings plan than with a regular RRSP. How is this possible? The answer is with an individual pension plan (IPP) set up for retirement income purposes. The rules for these plans allow for the accumulation of greater assets than compared with a standard RRSP. An IPP is a defined benefit pension plan and unlike an RRSP it sets your income at retirement.|
An IPP is similar to an RRSP in that it uses an investment account that accumulates over time to provide retirement benefits, however an IPP will provide certain guarantees over and above a traditional RRSP. For example, the amounts saved in an IPP are locked in and may be used only for retirement purposes whereas a standard RRSP can be withdrawn at any time and taxed. Also the plan’s contributions are determined by a series of Actuarial Valuation Reports which ensure sufficient assets at retirement.
Who can take advantage of the IPP?
The individuals who often gain the greatest benefit from an IPP are business owners, incorporated professionals and certain executives, age 40 and over, and earning over $124, 722.00 in T4 or T4PS income. However, it should be noted that an IPP may also be established for candidates with lower earnings.
What you need to know
Key benefits of an IPP
It means every successful business owner or professional should at least be considering an IPP. An IPP allows the owner to know how much they will have when they retire, creates tax deductions for the corporation, allows the company to make up investment losses and mandates a prescribed annual rate of return of 7.5%. If the owner should die prematurely, the funds can be paid to the spouse and transferred to his or her RRSP as locked in funds. If there is no spouse, funds are payable in cash to a beneficiary or the estate. Also, the spouse or the beneficiary will receive 100% of the value, not a reduced value (66.7%) which can happen with other pension plans. Finally, and perhaps the best reason to investigate is the fact that you can save so much more for retirement in a tax effective manner as compared with a RRSP. In other words, the benefits are certainly worth considering and I strongly suggest a simple conversation with your financial advisor to go over the pros and cons of such a plan to see if one could benefit you.