Enhancing Your Retirement Income 

With an Individual Pension Plan (IPP), you can accumulate as much as $650,000 more for retirement compared to a traditional Registered Retirement Savings Plan (RRSP).
An IPP is a registered pension plan for incorporated businesses usually set up for one person the health-care practitioner. An IPP generally enables you to make higher contributions than the maximum permitted for RRSPs which are tax-deductible to the corporation. Although there is no minimum income level, typically those earning T4 salary of more than $125,000 per year and age 40 or older tend to reap the most benefit from this unique retirement planning option for incorporated health-care practitioners.
 
Accumulate up to $650,000 more for retirement by contributing to an IPP instead of a regular RRSP.

Mark Brown is a 55-year-old doctor and plans to work until his 65th birthday. Mark has begun to plan for his retirement and is looking for a way to defer the tax on earnings in his professional corporation until he is able to withdraw that money as income upon retirement.

Comparing the Individual Pension Plan (IPP) to a traditional RRSP, Mark discovers that at retirement the IPP provides him with an increase of up to 65% more assets than his RRSP as much as $650,000 more. A substantial difference that encourages Mark to take a closer look at the numbers:

As Mark has been incorporated for 10 years, he qualifies for full Past Service benefits from January 1, 2002. This increases his corporations first year contributions by $95,400. Coupled with his corporations Current Service contribution of $33,000, he can contribute $128,400 from his corporation to his IPP in the first year, which is 100% tax deductible.

Mark learns that in order to capture Past Service he will have to rollover (with no tax consequence) $224,200 of his existing RRSP assets to the IPP. As Mark has enough RRSP assets to take advantage of full Past Service, he proceeds to investigate the projected accumulation of his IPP assets. Knowing that the assets must earn a regulated return of 7.5% compounded annually, and that shortfalls and surpluses are remedied at a periodic valuation, Mark lists all contributions, plus interest growth, to his 65th birthday:

Past Service Contribution + Rollover

$319,600

Total Current Service Contributions to age 65

$532,500

Amounts Above + 7.5% per annum compound growth

$1,479,800

Additional Funding allowed at retirement

$157,400

Total Plan Assets at age 65

$1,637,200*

The total accumulation for an RRSP Only Strategy at age 65 would be $981,500.

Mark learns he can add his spouse to the IPP who has worked and collected a T4 income from the professional corporation for the past five years and will most likely continue until retirement. This additional feature further convinces Mark that the IPP is the right solution for him.

Source: Buck Consultants, as of February 2012* Assumptions:IPP contributions are based on maximum earnings of $132,334 for 2012. Date of Birth= January 1, 1957. Existing RRSP= $434,940. Future RRSP Contributions for 2012= $22,970. Interest on IPP/RRSP Investments= 7.5%. Projections do not include applicable actuarial fees.

The above example is intended as general information and should not be considered to be tax or legal advice. It is based upon certain assumptions disclosed above that are subject to change and that may not apply to your circumstances. The strategy(ies) employed above may entail a risk of loss.