Are you a business owner or executive? The Individual Pension Plan (IPP) could be useful in helping you plan your retirement.
The IPP is a registered retirement plan intended for one person. It is a defined benefit plan, which means that you know in advance the amount you will receive upon retirement. The plan is sponsored by an incorporated business for its owners or executives.
You will not have to pay taxes on the contributions made for you by the business. Just like with the Registered Retirement Savings Plan (RRSP), you will only pay taxes on the amounts you withdraw. Investment earnings are also tax-sheltered as long as they remain in the plan.
Normally, the Individual Pension Plan is reserved for connected employees, meaning employees who hold 10% or more of the shares in the business sponsoring the plan.
If you are 40 or older and earn more than $75,000 a year, this tool is often more beneficial than the RRSP. The contributions can be much higher than the RRSP’s allowable limit. You can therefore save more money for your retirement.
The amount of annuity you will receive depends on different factors, most notably the number of years you worked and your salary. An actuary will make the necessary calculations to determine the annuity and set the contribution amount.
The law provides an annuity equal to 2% of the average of your three highest years of salary. There are, however, maximum amounts. For example, in 2019, the maximum monthly pension is $3,025. This amount is indexed each year.
Upon retirement, you can receive a benefit paid out directly from the plan if it is still valid. You could also choose to purchase a life annuity, or even transfer the sums into an RRSP or a Registered Retirement Income Fund (RRIF).
The Individual Pension Plan has several advantages for participating employees. Here are the main ones.
Companies also benefit from certain advantages:
Of course, the Individual Pension Plan also has a few disadvantages for both the participant and the company.
The Individual Pension Plan is an advantageous retirement option for business owners and executives. For other situations however, a Group Retirement Plan may be better suited to certain needs. Consider Group RRSPs, pension funds and Voluntary Retirement Savings Plans (VRSPs), for example. A financial advisor can help you understand the different options at your disposal to make your retirement really count.
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