If you are a successful business owner, professional or executive looking to increase your retirement income assets, an Individual Pension Plan (IPP) may be worth exploring.
An alternative to the traditional RRSP, these plans are best suited to individuals age 45 and above, with annual earnings in excess of $130,000.
IPPs offer higher annual contribution limits than RRSPs, as well as the opportunity for substantial past service contributions. Both the annual “current service” and “past service” contributions are fully tax deductible to the employer.
In essence, an IPP provides the opportunity to transfer significant funds from the company into a defined benefit pension plan for the individual on a tax free basis.
For example, a male age 55 would have an RRSP contribution limit of $22,970 in 2012. With an IPP, the current service contribution for 2012 could be up to $32,445, almost $10,000 more.
Here’s how the numbers would look assuming this same individual implemented an IPP in 2012, had met maximum earnings criteria since 1991, and had made maximum RRSP contributions during that same period:
Past Service Liability: $657,153
Less RRSP Transfer: (442,940)
Net Past Service
Contribution: $214,213
Add Current Service
Contribution: $32,445
Total IPP Contribution: $246,658
For more information or to determine whether this strategy is appropriate for you, call me at 604.688.7208.