With Hallowe’en just passed, it brings to mind another spectre that appears to have been revived: Individual Pension Plans (IPPs). And it’s good news for business owners.
It’s a bit technical, but here is a brief summary of what’s happened:
Historically, business owners could fund a significant portion of the accrued liability associated with their IPP from pre-tax earnings of their operating company. This provided a very tax effective method of funding retirement.
This year’s federal budget introduced measures requiring that the past service be funded first with the IPP member’s RRSP (including unused contribution room and money purchase plan) assets (defined as the “qualifying transfer”) which eliminated the ability to use pre-tax corporate earnings to top up the IPP.
The rules were recently softened by limiting the amount of the qualifying transfer to a portion the RRSP assets; thereby, restoring the balance of past service funding with tax deductible contributions from the company (albeit a lesser amount than was previously available).
The bottom line is that IPPs still offer significant benefits to business owners (visit IPP Experts to learn more) and their families. In our view, IPPs should always be considered in retirement planning for business owners over 50 years of age who have at least 10 years of service with their company to assess how they can be incorporated into the retirement plan for maximum advantage.
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