Maybe I’m dating myself here, but I always found that 1991 Naughty by Nature tune “O.P.P.” pretty catchy. “You down with OPP (Yeah you know me)…”
The rest of the lyrics aren’t appropriate to reprint here, but when I first learned about IPPs early in my career, this song ALWAYS popped into my head. (And if you know this song, then it probably just popped into your head and it’ll be there the rest of the day. You’re welcome.)
So what is an IPP and why am I writing about it?
IPP stands for Individual Pension Plan – a tax-sheltered, retirement savings option for incorporated business owners and incorporated professionals. Call it a super-sized nest egg program or an enhanced retirement strategy. It’s a unique opportunity to accumulate tax-sheltered funds in a personalized, often a one-person (rather than group) pension plan.
Step 6 of the 8-step Roadmap to Real Riches is all about setting aside money for your personal pension plan/portfolio. You may be one of the individuals generating a T4 income (not dividend income) for whom an IPP is an important tool in your financial toolbox.
What’s the advantage of an IPP over an RRSP?
An IPP is set up by an incorporated company, typically for a single individual. Unlike RRSP savings, an IPP pays out a defined benefit after retirement (and can’t be used for anything else before then). The main difference is that IPPs allow for higher employer tax-deductible contribution amounts than RRSPs.
Who is an IPP for?
- Incorporated Business Owners and their family
- Incorporated Professionals, typically in the legal, medical and accounting fields
- Aged over 40, younger than 71. (The IPP is available to those under 40 but the advantages are moot. Besides, if you’re under 40 you may not have switched your focus to retirement planning yet. And for sure you won’t have heard OPP by Naughty by Nature.)
- You earn or pay yourself $100,000 or more in a salary or bonus from the/your corporation.
- You want to contribute more than your RRSP limit allows.
- You could use additional creditor protection.
- Your corporation has excess cashflow available to take out of the business (an excellent problem to have).
- You’re looking for ways to share wealth and/or looking for a tool for intergenerational transfer.
An IPP can be an important part of your financial freedom strategy, which may include a ‘post-work’ career and other assets like an RRSP, a TFSA, your Non-Registered Investment Portfolio (stocks/bonds/mutual funds/GICs etc), and real estate (residential income properties or commercial real estate).
There are a LOT of considerations, legalities and fine points to set up and get down with IPPs.
That’s why I’ve invited Rachelle Murphy, Consultant with SAI Actuarial Services to explore this nest egg enhancing program with me and a small group of smart investors, entrepreneurs, and business owners.
This will be the topic of my first of four 2019 Elevated Conversations with Colleen O’Connell-Campbell. I created Elevated Conversations to bring together investors, entrepreneurs, business owners, and professionals alike in this era of significant innovation and disruption to our world, to discuss changes in the way we live and do business daily.
If you’re interested in attending “IPP, Supersized RRSP for the Incorporated Business Owner/Professional” with Rachelle Murphy here in Ottawa on Wednesday, March 27th, 2019, please apply online. Elevated Conversations are held over dinner from 5 pm to 7 pm at a fine establishment along Preston Street. More details will be provided once you’ve applied.
“Harm me with harmony / Dave drop a load on 'em / IPP, how can I explain it / I'll take you frame by frame it…”