Your RRSP has a ceiling. An IPP's ceiling rises with age.
If you are an incorporated professional over 40 paying yourself a T4 salary, your RRSP room grows by a fixed amount each year. An Individual Pension Plan is a registered pension that can let your corporation contribute more on your behalf than an RRSP allows, deduct those contributions, and shelter the growth from tax until retirement. It also brings costs and funding obligations, covered below.
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
From about age 40, the amount an IPP allows generally exceeds the RRSP limit, and the gap widens with age. How large it is for you depends on your age and salary history, so it comes from an actuary's calculation rather than a rule of thumb. Contributions are deductible to the corporation in the year they are made.
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. This usually requires transferring part of your existing RRSP into the plan first, which reduces the new deduction, so the actuary's illustration should show the net figure. For an owner with a long salary history the deduction can still be large.
Your retirement savings may be protected from creditors
Assets in a registered pension plan often have protection from creditors under pension legislation. The rules for plans that cover only an owner and family members vary by province, so confirm the protection that applies to your plan with a lawyer.
If markets underperform, the corporation must top it up
If IPP investments fall short of the actuarial assumptions, the corporation has to make additional contributions to cover the shortfall. Those contributions are deductible and they support a defined pension that an RRSP does not promise, but they are an obligation: the corporation needs the cash to make them.
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 for retirement and generally cannot be taken out as cash. Minimum withdrawals start by the end of the year you turn 72.
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 around 50 with a long, high T4 salary history, the IPP contribution is usually larger than the RRSP maximum ($33,810 for 2026), and the gap grows each year. An actuary calculates the actual figure from your age and salary history, along with the setup and administration costs, so you can compare the two on the same basis.
See Your IPP Advantage
Whether an IPP beats your RRSP depends on your age, salary history and how you pay yourself. A review gives you contribution figures for your own situation, not a rough estimate.
Find out if the numbers work for you.
Whether an IPP makes sense depends on your age, salary history, how you pay yourself and how long you plan to keep working. A short call is enough to tell whether an actuary's illustration is worth getting.
This information is general and does not constitute financial, tax, or legal advice. Individual Pension Plans involve complex tax and pension legislation and are designed by a pension actuary. This strategy is not suitable for everyone. Confirm any decision with your accountant and lawyer. Tax rules, interest rates and policy values change, and values that are not guaranteed can be lower than illustrated. Five Ridge Financial Ltd. is licensed to sell life insurance and segregated fund contracts in Alberta and British Columbia and is paid commissions by insurers on policies placed.