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What is an IPP?

An IPP is a maximum defined benefit plan that provides contribution amounts in excess of the RRSP limit for people who satisfy certain age and earnings criteria. That plan has financial advantages over the RRSP-only alternative for high-income earners over a certain age limit. Some sample maximum 2005 current service contributions (ie. for benefits being accrues in current year) to an IPP are as follows:

 
 

Age

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35
40
45
50

IPP Contribution

$16,800
$18,500
$20,300
$22,300

Age

55
60
65

IPP Contribution

$24,500
$26,900
$31,200

 
 


For a 60-year-old member, the 2005 RRSP contribution would be $16,500, so you can see that there is a $10,000 advantage in using an IPP, this plan can be viewed as a "super" RRSP.

Who can take advantage of the IPP?

Key candidates for an IPP are business owners, their families key executives and professionals with Professional Corporations.

The only stipulation is that the sponsoring company must be incorporated.

Who is the ideal candidate?

An owner, incorporated professional, or executive, age 35 or over, and earning over $100,000 in T4 or T4PS income, is the ideal candidate. However, IPP may also be established for candidates with lower earnings.

What are the advantages of an IPP?

- Higher contribution limits as compared to RRSP's
- Contributions must be made by your corporation on your behalf
- The contributions must be made by the corporation are tax-deductible
- Like an RRSP, the capital grows on a tax-deferred basis
- Contributions for past service are allowed
- Interest on funds borrowed by the corporation to fund an IPP are tax deductible, unlike an RRSP
- Assets within an IPP are creditor proof
- An IPP is a "defined benefit" plan and therefore guarantees a predictable and definable lifetime income upon retirement
- The ability to "top up" contributions if investment returns are less than 7.5%
- Opportunity to make deductible lump sum contribution at time of actual retirement
- A plan member can commence pension payments anytime from age 50 as long as he/she is receiving T4 remuneration from the plan sponsor
- Spouse can participate as employee of the corporation
- Assets not used can be transferred to second generation without tax penalty

Disadvantages

- Plan members can not contribute to a Spousal RRSP
- No access to funds before retirement
- Regular contributions are required to maintain the IPP
- There are actuarial costs to set up and maintain the IPP

If you would like to see whether an IPP is right for you let us prepare for you a quotation free of charge.

For further information please contact Allan Strickland at the above address or by email at allan@mbutlerinsurance.com.

 

 


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