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Raising the bar on retirement planning: Individual Pension Plans provide enhanced benefits for business owners, but evaluate the strategy carefully before proceeding.

Article Excerpt
Tax season always drives home the lesson that wealth management is partly about growing one's assets but just as importantly about limiting the annual bite taken by Canada Revenue Agency. An underused strategy for achieving both of those goals is the Individual Pension Plan (IPP). An IPP is a defined benefit pension plan, typically for one person, and this tax-deferred retirement vehicle can compare very favourably to an ordinary RRSP.

Typically, IPPs are established for small business owners--including incorporated professionals--or senior executives. A spouse may be included in an IPP, provided he or she is also an employee of the company. The key requirement is that the sponsoring company must be incorporated.

An ideal candidate for an IPP is over 40 years old, draws T4 income greater than $100,000, and has made the maximum contributions to their RRSP in the past. For the right client, the IPP strategy delivers significant benefits, the most important of which are outlined below.

How it works

As a defined benefit pension plan, an IPP provides a pre-determined level of retirement income for life. The plans provide for retirement at age 65, but the member may begin retirement as early as age 55 or as late as the end of the year that he or she turns 69. At retirement, pension assets provide an income...

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