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What’s an IPP (Individual Pension Plan) and who is it for?

By February 11, 2019December 5th, 2022No Comments

Today, we’re chatting about the IPP, also known as the Individual Pension Plan. It’s truly a fantastic way for business owners to pull out a lot more tax-free money from their respective corporation.

We’ve all heard of an RRSP, right? You contribute to an account, get a tax deduction personally and it effectively reduces your income. Now the thing with business owners, is that they’re limited. If you are indeed a business owner, the IPP could potentially be for you.

Now it’s not for everyone. Obviously, you need to own a business and have spare cash flow. Ideally, you need to be above 40 years of age and have a high income (high taxable T4 income). The higher your income, the more IPP contribution room you will get.

Why does the IPP work for high networth business owners? Once the individual creates the individual pension plan, he or she is effectively replacing their RRSP with that IPP account and it now becomes a new account. This account then gets funded by your corporation or your business account.

This is a fantastic a way for the business to pull out more money than they would if they were just doing the RRSP contribution. Some examples can run anywhere from one and a half times to even twice as more RRSP contribution room through the IPP.

So how does that work? You set up the Individual Pension Plan. Once it’s structured, there is a rollover. All the RRSP assets move into this IPP account. The business will then also fund it, usually using a formula. It’s calculated by an accounting or an actuarial firm. They calculate it and then you’ll start with a huge lump sum and in turn, it will become an expense for the corporation.

What I find neat is that you can then reduce your actual profits for the Corp and you can also potentially even reduce your tax bracket for the corporation while doing so. To recap, you take the money out of the corp., you then put it into a personal account. No matter what happens with the corporation, whether you sell it someday and move on or hand it down to the next generation, you will have that bucket of assets that effectively should be twice or even three times as large as an RRSP.

That IPP will then fund your retirement for the rest of your life. You could also add other important and connected people. You could add a spouse to an IPP, a partner and/or your kids if they are working for the company.

This is a unique investment option. Very few people know about the IPP. A lot of people would be a perfect fit for an IPP. They just don’t know about it or they’ve never heard about it.

There is a lot of moving parts in the IPP. It’s not simple, but the ballpark main factors are:

  • Are you 40 or older?
  • Are you in a high-income tax bracket?
  • Do you have a corp. and does the corp. have spare and disposable income?

If you answered yes to all those questions and if you want to retire wealthier, you should consider the IPP.

If you’d like to schedule a call with Rob and discuss further on Individual Pension Plans or anything related to your portfolio management, just click the button below and we’d be happy to help.

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What is an IPP =