Financial Perspective – The individual pension plan: a tool designed for entrepreneurs
For a business owner, an individual pension plan offers a way of accumulating more capital than a registered retirement savings plan, and doing so more quickly while also reducing the tax bill. Too good to be true?
When it’s time to save for retirement, most wage-earners turn to registered retirement savings plans (RRSP) and tax-free savings accounts (TFSA). For a business owner, however, the choice is more complicated.
In fact, the composition of a business owner’s income, usually consisting of a salary plus dividends (which don’t create RRSP contribution room), can make it hard to maximize RRSP contributions. As well, entrepreneurs would often prefer to keep their assets in the business to make it easier to reinvest them in new projects. The result: their retirement savings are not always set up in a formal way, and given the recent changes in legislation this can leave them exposed to an increasing tax bill.
And that’s where the individual pension plan (IPP) comes in…