Is an Individual Pension Plan Right for You?
Would you put more money into an RRSP if the annual limit was higher? Are you in your late 40’s or younger than your late 60’s? Is your T4 income over $120,000 per year? Are you an owner of an incorporated business or a professional? If you answered yes to all of these questions, you should consider an Individual Pension Plan (IPP) to accumulate retirement assets.
What is an IPP & How does it Work?
An IPP is like a corporate RRSP with higher contribution limits. Your company funds the plan and you are the beneficiary. At age 50, your maximum contribution to the IPP is $35,603, compared to $26,230 with an RRSP. The maximum contribution to the IPP gets higher as you grow older. You, also, could be entitled to past service contribution. The amount would be calculated based on the number of years you have received salary remuneration and your salary history. Funding for past service would come from transferring a portion of your RRSP and new tax deductible contribution.
Key Features of an Individual Pension Plan
- Higher Contribution Limits than RRSP
- Possible Past Service Contributions
- Additional Contributions if Lower than 7.5% Returns
- Creditor Proof
- Withdrawals as Pension Income
- Income Splitting Available on Withdrawals
IPP vs. RRSP Maximum Contribution
Age |
2018 IPP Current Service |
2018 RRSP Deduction Limit |
2018 Current Year Advantage |
|
|
|
|
45 |
32,411 |
26,230 |
6,180 |
50 |
35,603 |
26,230 |
9,373 |
55 |
39,107 |
26,230 |
12,877 |
60 |
42,958 |
26,230 |
16,728 |
65 |
43,198 |
26,230 |
16,968 |
70 |
38,057 |
26,230 |
11,827 |
*This chart is prepared assuming the individual has been receiving T4 employment income in excess of $145,722 from the potential IPP sponsor from 1991 to 2017.