Individual Pension Plan (IPP)

Increasing Retirement Income with an IPP

By providing the maximum benefits permitted under the Income Tax Act, an IPP generally allows higher tax-deductible contribution amounts than those permitted under an RRSP. For individuals who wish to maintain their pre-retirement lifestyle when retired, IPPs are an effective way to accumulate tax-sheltered funds.

Who can Open an IPP?

IPPs are designed for incorporated business owners and incorporated professionals.

Reasons to Consider an IPP

Substantially higher retirement savings compared to an RRSP
Higher annual contributions than an RRSP for individuals over age 40
IPP investments grow on a tax-deferred basis
Assets within an IPP are protected from creditors
Contributions and IPP related expenses are tax-deductible for the sponsoring company
Possible to make contributions for past years of employment
Additional lump-sum contribution permitted at retirement
Able to compensate for investment and funding shortfalls through additional contributions
Several options at retirement
At death, remaining value goes to surviving spouse or estate

Suitable Candidates

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

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.

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