Business owners: Skip the RRSP, set up an Individual Pension Plan

As a business owner, your RRSP may be limiting your ability to properly save for the retirement you want. If you earn more than $75,000 per year, then you should be looking at an Individual Pension Plan or often referred to as an IPP. This plan has much more room to contribute than an RRSP does, in a tax-sheltered framework with significant tax-planning benefits.

An IPP is a registered, combination pension plan provided by your corporation that can offer defined benefits. It’s based on pension-eligible T-4 earnings, for individuals of any age. If used strategically, an IPP can help you get the maximum pension that Canadian tax laws allow. And you won’t pay tax until the plan starts generating pension income.

Consider that you can now have your own pension plan where your contributions (and administrative & investment costs) are fully tax deductible to your company. So, instead of taking a bonus or a dividend with that surplus cash and paying tax on it, start an IPP and pay no corporate or personal tax on your contributions.

And don’t think it’s too late for you to start because you have already accumulated substantial RRSP savings. Not only can you transfer your RRSP to the IPP, but you can also make additional payments to your IPP as catch up payments.

Finally, if you find that you don’t end up needing your IPP on retirement because you have other assets, you can transfer it to your kids or another designated beneficiary. When family members are on the payroll of your company and you add them to your IPP, the assets transfer to your kids with no tax on death. You simply cannot do that with an RRSP.

Call your financial advisor today to see if an IPP is right for you.

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