IPP vs RRSP? What’s the difference? You may have heard people ask this. Below we’re giving you the answer.
Individual Pension Plan is a employer sponsored defined benefit pension plan whose goal is to provide a retirement benefit for “connected individuals” or “significant shareholders” who hold at least 10% or more of ownership interest in a particular company or corporation.
This usually includes executives or incorporated business owners who run their own practice such as dentists, doctors, lawyers, etc. earning at least $145,000+ in annual salary. (2.5x the YMPE)
An IPP is able to provide a enhanced benefit above of what a traditional savings plan such an RRSP can due to it’s higher contribution limits.
IPP vs RRSP
An IPP has similar features to an RRSPs as they both provide tax deferred growth and creditor protection but they different in how much you could contribute. An IPP provides greater accumulation and has a higher contribution limit than an RRSP. Contributions into an IPP increase by age and the closer you are to age 65, the higher the contribution room.
Benefits of IPP
- Tax Deduction
- Employer contributions are tax deductible
- Credit Protection
- Since it’s a registered pension plan, it’s creditor proof and assets exempt from seizure
- Tax Deferral Opportunities
- Employee can benefit from tax deferred growth
- Asset Ownership
- Assets belong to the employee even though contributions were done by the employer. Upon death, the assets are paid to the spouse or estate.
- Guaranteed Benefits
- Company has to guarantee the required level of retirement benefits, regardless of market direction
- Purchase of Past Service
- Recognize years of service, post 1991, through lump sum contributions
