Nafarrate Wealth Management Group - Individual Pension Plan

Maximizing your retirement benefits with an Individual Pension Plan

An Individual Pension Plan (IPP) is a defined benefit pension plan established by an incorporated company to provide enhanced retirement benefits and important tax advantages for business owners and key employees.

How does it work?

Opening the IPP Suitable candidates include:

Individuals over the age of 40 who earn T4 income
Incorporated business owners and family members
Incorporated professionals
Senior executives
Small businesses with sufficient cash flow to fund the IPP

Contributing to the IPP:

Higher annual contributions than an RRSP for individuals over the age of 40
Substantially higher retirement savings compared to an RRSP
IPP investments grow on a tax-deferred basis
Contributions and IPP-related expenses are tax-deductible for the sponsoring company
Possible to make contributions

Investments inside the IPP

Can invest in securities similar to those allowed in an RRSP (stocks, bonds, mutual funds, GICs, etc.)
Placing funds in an IPP helps diversify where assets are held (as the IPP is a separate tax entity, you would be splitting your investments between your corporation and your IPP without triggering tax consequences)
Prudent investor strategy – no more than 10% of MV of plan in any one holding

Retirement options

Receive pension benefits at any age before the calendar year you turn 71
If the sponsor company is sold there is an option to transfer the commuted value to another registered plan
Optional annuity purchase

IPPs from RBC Wealth Management

Establishing an IPP can greatly enhance retirement benefits, but it can also be complex. That’s where our team of qualified professionals can help – by making it easy to establish an IPP that’s right for you.

To learn more about IPPs, please contact us.

1. The actual surplus/deficit of the plan will be calculated by the actuary and involves taking into account other economic factors, such as inflation and indexing, to determine the required rate of return.

This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc.* and RBC Phillips, Hager & North Investment Counsel Inc. (collectively, the “Companies”). *Member-Canadian Investor Protection Fund. Each of the Companies and the Royal Bank of Canada are separate corporate entities which are affiliated. The information provided in this document are not intended as, nor do they constitute, tax or legal advice. The information provided should only be used in conjunction with a discussion with a qualified legal, tax or other professional advisor when planning to implement a strategy. ® / TM Trademark(s) Registered trademarks of Royal Bank of Canada. Used under licence. © Royal Bank of Canada 2022. All rights reserved. 22_90931_002

Individual Pension Plans (IPPs)

View transcript

Are you an incorporated business owner or professional receiving T4 income while contributing to an RRSP?

If so, you may want to consider an Individual Pension Plan (or IPP).

An IPP is a defined benefit pension plan your company can set up for you.

An IPP is ideal if you’re between the ages of 40 and 71, earning T4 income, and have owned your company for several years.

With an IPP, you can make higher annual contributions than an RRSP...

...and gain the ability for your company to make a large tax-deductible past- service contribution.

In addition, the company can make a top-up contribution if IPP assets fail to grow by 7.5% per year with adjustments.

Here’s a chart showing a comparison of IPP funds versus RRSP funds for someone who is 50 years old, with 23 years of past service.

As you can see, the ability to make a large past-service contribution, along with the increased annual IPP contributions, result in a higher registered plan balance.

While IPPs do involve more complexity and have higher annual fees than RRSPs, the fees are fully tax-deductible.

This video is provided by RBC Wealth Management for informational purposes only. The comments contained in this video are general in nature, and do not constitute legal, investment, trust, estate, accounting or tax advice. RBC Dominion Securities Inc.*, Royal Trust Corporation of Canada, The Royal Trust Company, RBC PH&N Investment Counsel Inc., RBC Wealth Management Financial Services Inc. are affiliated corporate entities and member companies of RBC Wealth Management, a business segment of Royal Bank of Canada. *Member – Canadian Investor Protection Fund. Please visit www.rbc.com/legal/ for further information on the entities that are member companies of RBC Wealth Management. ®/TM Trademark(s) of Royal Bank of Canada. Used under license. © 2020 Royal Bank of Canada. All rights reserved.