Individual Pension Plans
Overview
The results of the 2004 CIBC Small Business Outlook Poll suggested that “One-fifth of small business owners (or more than 500,000) are planning to retire within the next five years, and another 30 percent will retire by 2020. That is, within the coming 15 years, more than half of the country’s current small business owners are expected to retire.”
Why an Individual Pension Plan (IPP) ?
Through an Individual Pension Plan (IPP), an incorporated business owner can use tax- deductible corporate contributions to fund a personal pension plan for him/herself (and spouse if applicable) retroactive to the date of incorporation (1991 or thereafter) thereby providing a source of guaranteed income for his/her retirement years. Depending on age, maximum IPP contributions are well in excess of those allowed under RRSPs, resulting in far greater retirement income.
For example, based on current tax legislation, annual maximum IPP contributions are higher than annual maximum RRSP contributions by approximately: 20% for a 45 year old; 32% for a 50 year old; 45% for a 55 year old; and 60% for a 60 year old; resulting in proportionately higher retirement income under the IPP system.
The business owner’s corporation can also purchase “Past Service” back to 1991 for selected individuals. Past Service is defined as the ability to assume that the Individual Pension Plan was in effect from the date of incorporation (latest 1991) and to make up catch up contributions which are deductible to the corporation.
Age in |
2009 |
2009 |
Maximum |
Total |
50 |
21,000 |
27,863 |
142,447 |
170,310 |
55 |
21,000 |
30,606 |
189,924 |
220,530 |
60 |
21,000 |
33,619 |
242,075 |
275,694 |
65 |
21,000 |
35,410 |
273,063 |
308,473 |
Summation
The IPP gives the business owner the opportunity to maximize retirement assets outside the business while at the same time providing asset protection. This allows the owner’s retirement to not be totally dependent on the future of the company. For the IPP, the ultimate size of the retirement fund is predictable in advance. The fund will always be sufficient to provide for the maximum retirement benefit allowed by law.This assists in planning the business owners’ Retirement Transition.
