Would it help your retirement planning if you could use pre-tax corporate income to grow your savings?
Many business owners, including medical professionals with a family practice, don’t take advantage of the opportunity to do this through an Individual Pension Plan (IPP).
You can set up an IPP that covers just you as the owner, or add employees – such as family members who work in your practice – as well. The primary advantage is you will know what your pension will be in advance, and that payment will be generous and your company can contribute additional funds to top up the IPP if your rate of return falls below 7.5 percent.
It depends on your unique circumstances, but for many an IPP is basically a revved-up Registered Retirement Savings Plan (RRSP).
For example, if you are 45 years old and your T4 income was over $144,500 in 2016, your IPP contribution limit would be $28,898. Your company can deduct the amount it contributes into the IPP. Administrative costs and other fees associated with the IPP are also deductible by your company, including interest costs on loans taken out to contribute.
If you are younger or earned less, your contribution limit would be likewise lower, but still compare favourably to the maximum $25,370 RRSP deduction. This is important given the IPP provides maximum pension and eliminates the RRSP deduction limit.
With an IPP, you can also provide past service pension benefits retroactive to January 1, 1991. You are required to transfer an amount from your personal RRSP to your IPP in order to qualify, but for many families, it makes sense to do so.
IPP-related regulations are comprehensive and complex, but as a general rule it is definitely an option you should consider if you are over 40 years of age and earn enough to always make your maximum RRSP contribution.
I’d be pleased to provide a confidential review of your financial plan to determine if an IPP is your best option. If you have any questions about your corporate structure options or retirement planning, please let me know.