For incorporated professionals and high-income business owners, an IPP can unlock retirement savings beyond what an RRSP can offer.
Most Canadians are familiar with the Registered Retirement Savings Plan (RRSP). It’s a reliable tool for many employees looking to grow retirement funds. However, for business owners and high-income professionals, there’s another option worth considering—the Individual Pension Plan (IPP).
An IPP is a specialized, defined benefit pension plan designed for incorporated individuals who earn T4 income. Unlike an RRSP, where contribution limits can restrict long-term savings, an IPP allows for larger tax-deductible contributions and offers unique advantages such as creditor protection and intergenerational wealth transfer.
Why IPPs Are Gaining Popularity in Canada
Several trends have contributed to the rise of IPPs:
- Higher tax rates at both the personal and corporate level.
- Increased retirement income needs, especially for professionals used to a higher standard of living.
- Corporate tax reforms that have reduced certain tax-sheltering opportunities.
In this environment, business owners are seeking smarter, more flexible ways to save—and an IPP offers exactly that.
IPP vs. RRSP: The Key Differences
The fundamental distinction is this:
- RRSP – A savings plan with annual contribution limits, where retirement income depends on market performance.
- IPP – A defined benefit pension that calculates retirement income based on years of service and T4 earnings, providing predictable payouts.
With an IPP, you know in advance what your retirement benefit will look like—similar to large public-sector pensions. Better yet, you can make additional contributions if investment returns fall short, creating a built-in safeguard for your retirement plan.
Top Benefits of Setting Up an IPP
- Built for High-Income Professionals
- If you’re a doctor, lawyer, dentist or any other incorporated professional with consistent T4 income, an IPP was designed with your profile in mind.
- Larger Contributions and Bigger Tax Deferrals
- An IPP allows contributions that can exceed RRSP limits by as much as 65%, especially for professionals aged 40 and above. It also permits catch-up contributions for past years of service—creating a valuable opportunity for those who started saving late.
- Flexibility for Business Cash Flow
- Not every year looks the same in business. An IPP offers the flexibility to adjust between defined benefit and defined contribution models, making it easier to manage contributions during lean years.
- Creditor Protection and Corporate Tax Deductions
- Assets inside an IPP are shielded from creditors under provincial law, unlike RRSPs which only enjoy limited protection. Plus, corporations can deduct contributions and related administrative costs, offering both immediate and long-term tax relief.
- Wealth Transfer Advantages
- Unlike RRSPs, which are heavily taxed on the death of the second spouse, IPPs can be passed on to family members who are employed in the business and earning T4 income. This makes them a more effective vehicle for tax-efficient intergenerational wealth transfer.
Who Should Consider an IPP?
An IPP makes the most sense if you are:
- Incorporated and drawing T4 income.
- Over the age of 40.
- Consistently earning a high annual income.
- Looking for larger, tax-sheltered retirement contributions beyond RRSP limits.
The Bottom Line
For incorporated professionals and entrepreneurs, an IPP is more than just a retirement savings tool—it’s a comprehensive strategy for maximizing contributions, protecting assets, and even planning for family wealth transfer.
While RRSPs remain a great option for many Canadians, those with higher incomes and incorporated businesses should strongly consider an IPP as part of their long-term retirement and estate plan.
Retirement security doesn’t happen by accident—it happens by design. If you’re a business owner looking to future-proof your financial independence, an Individual Pension Plan may be the smartest investment you make.
