Your RRSP has a ceiling. An IPP does not.
If you are an incorporated professional over 40 paying yourself a T4 salary, you have probably noticed that your RRSP contribution room stopped growing years ago. The limit is the limit. But there is a registered pension structure that lets your corporation contribute significantly more on your behalf, deduct every dollar, and shelter the growth from tax until retirement.
How It Works
Your corporation establishes a registered pension plan with you as the sole member. An actuary calculates the annual contribution required to fund a defined benefit pension based on your age, T4 income, and years of service. The corporation makes tax-deductible contributions to the IPP trust, where the funds grow on a tax-deferred basis until retirement.
The pension benefit is determined by a formula: typically 2% of your best average earnings multiplied by your years of credited service. Because the cost of providing that pension increases as you get older (fewer years to fund the same benefit), IPP contributions naturally exceed RRSP limits for members over 40 and the gap widens every year.
At retirement, the IPP pays you a pension income, or you can transfer the commuted value to a locked-in retirement account. Either way, the total amount accumulated is typically much larger than what an RRSP alone would have produced.
What This Actually Means for You
The technical advantages of an IPP are well documented. Here is what they look like in practice.
You put more money away and pay less tax doing it
After age 40, IPP contribution limits exceed RRSP limits. By age 50, the annual gap can be $10,000 or more. By age 55, the IPP allows roughly 60% more than the RRSP maximum. Every additional dollar is a corporate tax deduction in the year it is contributed.
You get credit for the years you already worked
When the IPP is established, the corporation can make a one-time, tax-deductible lump-sum contribution covering prior years of service back to 1991. For a business owner with 15 or 20 years of history, this past service buy-back can represent a six-figure deduction in the first year alone.
Your retirement savings are protected from creditors
Assets inside a registered pension plan are generally protected from creditors under federal pension legislation. For business owners who carry personal liability or operate in higher-risk industries, this is a meaningful layer of protection that RRSPs do not always provide.
If markets underperform, the corporation tops it up
If IPP investments fall below the actuarial assumptions (typically 7.5% nominal), the corporation makes additional tax-deductible contributions to cover the shortfall. Your retirement savings have a floor that does not exist with an RRSP.
The setup and admin costs are deductible too
Actuarial fees, investment management fees, and regulatory filing costs are all legitimate corporate expenses. The corporation deducts them in the year they are incurred.
You can fund early retirement with a lump-sum deduction
If you retire before age 65, the corporation can make a terminal funding contribution to cover the cost of early retirement benefits. This can be a significant additional deduction in the year you step away.
The Trade-offs
An IPP is a powerful structure, but it comes with commitments. If you are going to do this, you should know what you are signing up for.
Actuarial valuations are required every three years. There is real administrative cost and complexity.
Once the plan is established, contributions are not optional. The corporation must fund the required amount each year.
Benefits are locked in. You cannot access IPP funds before age 55 without significant tax consequences.
The strategy is most effective with T4 income above $150,000. Below that, the contribution advantage may not justify the costs.
Setup costs typically run $3,000 to $5,000, with annual administration of $1,500 to $3,000.
This strategy is not suitable for everyone. Your corporate structure, income stability, and retirement timeline all affect whether the numbers work.
Common Questions
What is the minimum income for an IPP to make sense?
Generally, the crossover happens around $150,000 in T4 income and age 40 or older. Below that threshold, the contribution advantage over an RRSP may not justify the setup and administration costs. The exact crossover point varies by age and is typically between 40 and 45.
Can I have both an IPP and an RRSP?
Yes, but your RRSP room will be reduced by the pension adjustment the IPP generates. In practice, you will have roughly $600 of RRSP room per year after the IPP is in place. The IPP effectively replaces most of your RRSP room with higher contribution limits inside the pension plan.
What happens to the IPP if I sell my business?
The IPP can continue if the new owner assumes the sponsorship obligations. Alternatively, it can be wound up and the assets transferred to a locked-in retirement account or used to purchase an annuity. Planning for this scenario should happen well before any sale.
How does an IPP compare to simply maximizing my RRSP?
For someone age 50 earning $180,000 in T4 income, the annual IPP contribution can be approximately $44,000 compared to the RRSP maximum of roughly $32,500. Over 15 years to retirement, that difference compounds significantly. The IPP also offers creditor protection and the ability to make additional contributions if investments underperform.
See Your IPP Advantage
Run your age and T4 income through the IPP Contribution Estimator. It takes 30 seconds and shows you exactly how much more you could be sheltering compared to an RRSP.
Find out if the numbers work for you.
Whether an IPP makes sense depends on your age, income, corporate structure, and how long you plan to keep working. The Financial Snapshot includes a corporate planning section that maps it all out in about 10 minutes.
This information is provided for educational purposes only and does not constitute financial, tax, or legal advice. Individual Pension Plans involve complex tax and pension legislation. This strategy is not suitable for everyone. Consult with qualified professionals before making decisions.