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Individual Pension Plan (IPP) is a defined benefit pension plan. It provides senior executives and business owners with the opportunity to achieve maximum tax relief combined with maximum retirement pension. The Individual Pension Plan is a sound business decision for both entrepreneurs and executives who have the income to support a more aggressive tax deferral arrangement.
Contributions made into an IPP are fully deductible by the corporation/ IPP sponsors and are a non-taxable benefit for the plan beneficiaries until money is withdrawn from the plan (like a RRSP).
The Individual Pension Plan allows companies to contribute for the pension plan member for years of service prior to the set-up of the plan going back to 1991. In the first year of the set-up of an IPP, past service and current service funding for 2008 could be as high as $433,000, compared to the maximum 2008 contribution RRSP of $20,000.
IPP contributions versus RRSP contributions For example: a 45 year old owner/executive who has worked for the same company since 1991 and has averaged a T4 income of over $100,000 per year who plans to “max-out” their IPP contribution room (using a yearly rate of return of 7.5%) will accumulate $ 4,800,101 in registered retirement assets. Opting for this tax solution, this individual would have a registered retirement yearly benefit at age 71 of $362,819 fully indexed to the Consumer Price Index (CPI).
In Comparison, an owner/executive who only utilizes his/her RRSP option from 45 years old to age 69, would only accumulate $3,310,822 in registered retirement tax sheltered assets (using the same 7.5% compounded interest rate). This amount of RRSP assets on an annual basis would generate from age 71 and beyond $250,251 of retirement income.
The decision is clear; this particular owner/executive who implements both the IPP and RRSP tax solutions (as part of their retirement plan) would have an additional $1,489,279 of tax-sheltered assets in their registered retirement plan and have an additional $112,568 in annual retirement income.
