IPPs another pension option

Want to put money aside for your retirement and get some tax savings too? The answer, most people would say, is a Registered Retirement Savings Plan (RRSP). Not necessarily. For some business owners, the better solution might be an Individual Pension Plan, or IPP.

While there’s nothing wrong with the first option, an IPP is a way to potentially contribute more money on a tax-sheltered basis — and sometimes substantially more — than the maximum allowed for RRSPs.

“Companies can establish an IPP, making this an ideal vehicle for the self-employed, or for incorporated professionals, including doctors and dentists,” says Tony Maiorino, head of RBC Wealth Management Services.

IPPs, sanctioned by the Canada Revenue Agency, define the pension benefit in advance based on income and years of service. An actuarial formula is used to calculate annual contributions funding the pension benefit. These plans are most advantageous for people aged 40 and older who are earning over $100,000 a year on their T4, and who’ve been maxing out their RRSP contributions.

All IPP contributions made by a corporation on behalf of an individual are fully tax-deductible to the corporation. For the individual, an IPP is treated as a non-taxable benefit, which means tax savings all around.

There are other benefits: setup, maintenance and management fees are also tax-deductible to the corporation. And, in some cases, companies can make additional contributions for past service dating as far back as 1991.

Though IPPs aren’t as well-known as RRSPs, they’re growing in popularity. In 2005 there were 6,000 IPPs registered with Canada Revenue Agency. In 2012, that number is now closer to 10,000, according to Buck Consultants.

“Talk to your financial advisor to discuss all the features, and make sure that an IPP is right for you,” says Maiorino. “For the right individual, IPP spells out a great retirement and tax strategy.”

This article is provided by Colin MacAskill, vice-president and an investment advisor with RBC Dominion Securities Inc. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. MacAskill welcomes your calls at 604-257-7455.





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