With ever-shifting laws and uncertain markets, building a retirement savings plan that will give you the greatest benefit today, and into your retirement, requires skill and preparation. There are an array of investment vehicles aimed at helping you plan for your retirement, and the more you know about the tools available to you, the better prepared you will be.
Individual Pension Plans (IPP) are an increasingly powerful investment tool aimed at high-income business owners and incorporated professionals. IPPs are registered, defined benefit pension plans for a single member which protect savings under a tax-sheltering umbrella.
Who should invest in an IPP?
The ideal candidates for IPPs are:
High-income business owners, high-paid executives, and incorporated professionals
Over 40 years old, as the cap to invest rises with age
Grossing at least $120,000 per year on their T4 earnings
*IPPs offer an added bonus to those who have been under continuous employment with the same company since as far back as 1991 (as IPPs offer the potential for past-service contributions)
An IPP has three requirements:
A Plan Sponsor – which must be an active incorporated company.
A Plan Member – who must be an employee of the incorporated company and draw a T4 income from the plan sponsor.
A Pension Plan Document – which must identify the formula defining the amount of the benefit.
IPPs offer a variety of benefits for the right people.
Security – IPPs are trust arrangements, which means they offer ironclad creditor protection. They also mandate a safety-first approach by ensuring that the portfolio is not permitted to invest more than 10 percent of its assets in any one investment.
Floating contribution cap – IPPs allow for additional contributions if the portfolio has under-performed against mandated requirements.
Tax advantages – IPP contributions are made by the employer and are tax-deductible.
Lump sum contributions – IPPs allow lump-sum contributions known as past-service funding and terminal funding.
Flexibility – With IPPs you can choose between a defined benefits plan or a less expensive, defined contribution plan. This grants you the freedom to decide how much you’re paying into it, depending on how well your finances are year to year.
While IPPs are a great investment tool, there are drawbacks to be aware of before you start investing.
Commitment – Unlike an RRSP, any money invested in an IPP is out of reach until you retire.
Floating contribution cap – The floating cap referred to earlier has a flip side. A good year leading to a surplus will lower the amount you can invest in your IPP.
Cost – IPPs require an actuary, which will incur some administrative fees. This is why it is vital to shop around when crafting your IPP, and why you should go with trusted, credited experts, such as the advisors at Bayview Financial.
Creating the ideal plan for you
A good retirement plan will not only utilize every tool available to you but also maximize the benefits of each. At Bayview Financial, we can help you create and sustain a retirement plan that will make the most of every financial tool out there, no matter what new legislation comes down the pipe.Contact Bayview Financial today to talk more about an IPP for your business.