Customize Your Retirement: Consider an Individual Pension Plan What is an IPP and how does it work? An Individual Pension Plan (IPP) is a defined-benefit pension plan that is typically set up for just one plan member and is designed for business owners like you. With a similar income structure to an RRSP, an IPP has better tax protection and a much higher corporate contribution limit. Tax-deductible contributions are made directly from your corporation to the IPP. The assets of the IPP are invested and grow tax-sheltered. When you retire, the IPP provides you with a lifetime monthly pension or you can further defer taxes by making a lump sum transfer of the value of the IPP to an RRSP or LRIF/RRIF.1 What are the requirements of an IPP? z Your business is required to be incorporated (i.e., professional, regular, personal services corporation) z Some or all of your income from your corporation must be paid to you as T4 employment income Should incorporated dentists consider an IPP? An IPP can create a significant tax-planning opportunity for you and your business because the corporation can make taxdeductible contributions and you can benefit from tax-deferred growth inside the plan. Both of these benefits help with the Canada Revenue Agency’s (CRA) rules on passive investment income: the tax deduction helps reduce the corporation’s active income, and the tax deferred growth lowers corporate investment income. In many provinces, IPPs now offer enhanced flexibility with no locked-in requirements and fully flexible funding that is responsive to your cashflow needs. Only you know what you want your retirement to look like. If your practice is incorporated and you are looking for a more significant nest egg with even better income tax protection than a Registered Retirement Savings Plan (RRSP), an Individual Pension Plan (IPP) could be the answer. This enhanced flexibility is a significant improvement for incorporated professionals who currently have, or would like to setup, an IPP. AGE IPP RRSP2 The Advantage of an IPP 45 $32,300 $27,830 $4,470 50 $35,500 $27,830 $7,670 55 $39,000 $27,830 $11,170 60 $42,000 $27,830 $14,970 65 $47,300 $27,830 $19,470 Higher Tax-deductible Contributions z Higher Annual Contributions—the IPP maximum contribution rate for 2023 increases from 18% at age 39 to 29% at age 65, whereas the RRSP contribution rate is 18% for all ages z Flexibility in making contributions to IPPs 32 | 2023 | Issue 4
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