Individual Pension Plans (IPPs) offer massive advantages to qualifying business owners. Here are 10 ways to benefits from IPPs.

 

1. Maximize your tax-sheltered retirement savings

IPPs are the most tax-efficient registered retirement savings plan allowed under the Income Tax Act (“ITA”). Qualifying participants, employees aged 40 and over, can accumulate significantly more sometimes more than twice when compared to an RRSP.

 

2. Maximize your company's tax deductions

Your company will make the IPP contributions and get the related income tax deductions. As you will see below, there are many different ways of making IPP tax deductible contributions.

 

3. Make an important initial IPP past service contributions

The IPP pension benefits are based on the participant’s employment earnings and years of service. Past service can be recognized under an IPP. Part of the IPP funds needed to for the past service pension benefits must come from an amount of RRSP transfer. The company can fund the balance with an important tax deductible IPP contribution. Past service from all the business owner’s qualifying companies can be recognized under an IPP.

 

4. Contribute more annual than the RRSP limit

Each year, the company can make IPP contributions higher than the amount that the participant could contribute to an RRSP.

 

5. Contribute a significant amount at retirement

Some IPP pension benefits can only be funded at retirement, which means that an important additional tax-deductible IPP contribution, around 20% of the accumulated IPP assets, can be made by the company at that time. This helps taking cash out of the company at retirement possible outcome.

 

6. Contribute toward any IPP deficits

The company can fund any deficit revealed with the production of a new actuarial report by making one or more additional tax deductible contributions to the IPP. IPP contributions are determined based on a set of assumptions prescribed under the ITA. A deficit will occur when the IPP investment returns are less than 7.5% minus the difference between 5.5% and the average industrial wage index increase.

 

7. Make the IPP a family plan

Family members that are also employed by the IPP plan sponsor can participate to the IPP. For example, the business owner’s spouse could join when the IPP is implemented and the children could later join as well.

 

8. Deduct the IPP administrative expenses

The IPP administrative expenses are tax deductible to the company. The deductible expenses include the IPP investment management fees, if they are paid by the IPP plan sponsor, as opposed to being deducted from the IPP investment account. This is a significant financial advantage over RRSPs.

 

9. Decide up to 120 day after your fiscal year

The IPP administrative expenses are tax deductible to the company. The deductible expenses include the IPP investment management fees, if they are paid by the IPP plan sponsor, as opposed to being deducted from the IPP investment account. This is a significant financial advantage over RRSPs.

 

10. Receive a pension, which includes a survivor benefit

The normal form of pension benefits payable from an IPP is a fully indexed joint and survivor 2/3rd lifetime pension, with a 5-year guarantee. Optional forms of pension payments such as a pension with a 100% survivor component are available on an actuarial equivalent basis. It is impossible to predict your longevity. The company may have an opportunity to contribute if you or your survivor exceeds the IPP funds. Any remaining funds after the last death will go to the estate of the last survivor.

 

Need more information?

Do you have a question concerning an IPP? Contact us by sending an email to thomas.demello@rbc.com