Hey guys were chatting about the IPP
today, the Individual Pension Plan,
a fantastic way if you’re a business owner to pull a lot more money out,
tax free from your corp. So we all know about the RRSP.
How does that work? Right?
You contribute to an account, you get a tax deduction personally and
it effectively reduces your income. Now the thing with business owners is
they’re limited there and if you are a business owner,
the IPP could potentially be for you. Now it’s not for everyone.
Obviously you need to own a business. You need to have spare cash flow.
You need to be generally above 40 years of age and ideally you have a high
income, high taxable T4 income.
The higher the income, the more IPP contribution room you will
get. So the way the IPP works is when you
create the individual pension plan, you’re effectively replacing your RRSP
with that account and becomes a new account and that account then gets
funded by your corporation or your business account. It’s a way for the business to pull out
more money than they would if they were just doing the RRSP contribution.
Some examples can run anywhere from one and a half times to even twice as more
RRSP contribution room through the IPP. So how does that work?
You set it up. Once it’s structured,
there is a rollover, all the RRSP assets move into this IPP
account. The business will then also fund it,
usually using a formula. It’s calculated by an accounting or an
actuarial firm. They will calculate it and then you
start with a huge lump sum, so that becomes an expense for the
corporation. So that’s the neat thing is that you can
then reduce your actual profits for the Corp and you can maybe potentially even
reduce your tax brackets for the corp while doing so.
So you take the money out of the corp, you put it into a personal account,
no matter what happens with the corp, like someday maybe you sell,
the company maybe whatever, you move on,
you will have that bucket of assets that effectively is,
should be twice or even three times as large as an RRSP. That IPP will then fund your retirement
for the rest of your life. You could also add other important and
connected people that you could add a spouse,
you could add partners in an IPP, you could add,
you know your kids in an IPP if they are working for the company.
So very, very unique.
Very few people know about the IPP. A lot of people would be a perfect fit
for an IPP. They just don’t know about it.
They’ve never heard about it. So there’s a lot of moving parts of the
IPP. It’s not simple,
but ballpark main factors. Are you 40 or older?
Are you high income tax bracket? Do you have a corp?
And does the corp have spare, disposable income.
If you answered yes to all those questions and if you want to retire
richer, you should consider the IPP.
That’s it for today. Thanks folks and remember like the
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comments. We’d love to hear from you.