Individual Pension Plans- Why Everyone Loves Them

We all dream of retirement, and we all want to retire with the most money possible. Enter the Individual Pension Plan (IPP), a government structured retirement savings method that is where thousands of Canadians are putting their cash. The great part about IPP’s are that they offer guaranteed payments for those later years, in addition to allowing you to keep any excess funds.

The IPP is an employer provided pension option that has a wide variety of benefits for the business owner.

Versatility Offers Possibility

There have been some changes in the IPP structure in recent years that have made this program even more appealing to a wide variety of individuals. There are not the kinds of restrictions on succession that are problematic for other plans, and these are great plans for business owners.

Retirement age isn’t restricted in IPPs in the same way that is in other retirement programs. You can retire as young as age 60 and still be eligible to get your IPP payments. For individuals who are over the age of 40, there is also the possibility of starting with an IPP. You can even make contributions for past years, all the way back to 1991, in order to increase the amount of funds within the IPP and to boost the pension payment during retirement.

This ability to contribute more is one of the most important benefits of the IPP plan, and it’s a real reason that business owners choose to supplement their RRSPs with IPPs. In fact the IPP can give business owners who already have retirement plans in place as it can allow for a bridge in benefits, ensure cost of living increases, and allow for early retirement benefits that otherwise wouldn’t be possible.  They can elect to roll their current RRSP into their new IPP and get a better pension adjustment with higher contribution levels.

Another great reality of the IPP? They’re impervious to creditors. That means that in the event that you should find yourself in financial trouble, your retirement pension will continue to be solvent.

Family Businesses

The IPP program is perfect for family businesses for a wide variety of reasons. Should parents choose to retire while they’re children continue to run the business, an IPP can be kept open with funds intact and left for the next generation without suffering any tax penalties.

In many cases a family business is sold from one family member to another, and in the case of an IPP those retirement funds are not included as assets in the sale and thus can offer a significant deduction buffer. In fact for those who are wanting to pass down a family business from one generation to another, the IPP offers a marvelous way to transfer assets with lower taxes and fewer penalties. There are truly incredible benefits for family businesses!

Another benefit for families is that the IPP prevents tax liability in the event of the loss of a second spouse. Normally those assets are included in the estate and therefore subject to estate taxes, however funds that are part of a family business IPP are not part of that tax process.

The contributions made to the IPP are tax-deductible for the business while it isn’t taxed on the employee until the pension income begins after retirement. This aspect of the program can offer an incredible savings to the business and a benefit for the employee as well.

Executives

For executives who aren’t part of a family business, the IPP can still provide many of the same tax benefits, including increasing the limits on contributions and providing a lower tax retirement savings option for business owners.

Limitations To Be Aware Of

In order for income to be eligible for an IPP, it must be employment income. That means that small business owners must pay themselves a salary rather than drawing profit in order to contribute to this kind of plan, a decision that could have further tax consequences.

Another problem with the IPP is that if you do start it later in life, you’ll need to make up for some of those lost years in order to have a higher payout during your retirement years. Contribution caps are freer with an IPP, which means that you have room to do that if you have the funds to make it happen.

Deciding Your Direction

For many people these limitations pale in comparison to the incredible benefits that are possible with the IPP, which is why the IPP has become so incredibly popular. The best way to determine whether an IPP is right for you and your retirement plans is to speak with a retirement planning professional who can guide you through the positives and negatives of all of your options. These plans can become exceedingly complex, particularly when a family business is involved.

Whether you’re an executive or part of a family business, an IPP offers you a wonderful pension option to allow yourself to make provisions for an easier and more prosperous retirement.

Call Morgan National Corporation today at 1-866-595-3533, for more information regarding your Individual Pension Plan, or any other areas of finance you have questions about.