Are you a corporate lawyer? Learn about individual pension plan investments that will build your wealth!
WHAT IS AN INDIVIDUAL PENSION PLAN?
An Individual Pension Plan (IPP) is a defined benefit pension plan. If you are a legal professional who owns a professional corporation, an IPP offers maximum tax relief and a maximum retirement pension. As a result, you won’t longer rely on your RRPS’s performance to provide for a long and happy retirement. That’s because IPPs also offer guaranteed lifetime income and any surplus in the plan belongs to you. Read more to learn our insights on which pension fund investments corporate lawyers seek.
Why are IPPs so popular among corporate lawyers?
Incorporated legal professionals like knowing the pension they will receive ahead of their retirement. Their maximum contribution to an IPP at age 50 is also $7106 higher than a traditional RRSP and is also creditor protected. In addition, they can include past service to an IPP for years they did not contribute all the way back to 1991. Overall, they can significantly increase their contributions along with their tax deduction. IPP’s can also be set up for the legal professional’s spouse if the spouse is an income-earning employee of the corporation. Set up Fees are also tax-deductible to the corporation.
Individual Pension Plans and the Legal Professional Corporation
1. Includes a spouse or common-law partner as defined by the Income Tax Act (Canada).
Tax Saving Opportunities For:
Legal professional corporations who have income over $130,000 will pay taxes over the 46 percent rate for each dollar they earn over that amount. If they already plan to maximize their RRSP contributions, this is an excellent vehicle to provide additional tax deductions and save for retirement while making the most of their tax bracket.
Sale of a Business
Most law firms are sold to family members or partners. The proceeds from these types of asset sales are treated as taxable income. By setting up an IPP now using terminal funding, a deduction can be created against this income.
The legislation requires funding projections to be based on retirement at the age of 65. However, anytime after attaining age 60, a member of an IPP can retire and supplement the benefits provided in the plan by adding unreduced early retirement benefits, cost of living increases and bridging benefits. These early retirement benefits can provide a significant additional tax deduction for the company.
- Legal professionals who own a professional corporation
- Individuals age 40 or older
- People who earn employment income reported on a T4 of at least $132,300 from the company sponsoring The Individual Pension Plan
- Request a quote from your advisor showing the deposits that can be made based on your age and length of service while incorporated
- Compare the benefits of an IPP to an RRSP
- Work with your advisor to establish an IPP if you determine it is right for you
Contribution comparison in 2012 and Difference
Age IPP ($) RRSP ($) Difference ($)
40 24,926 22,970 2,476
45 27,380 22,970 4,930
50 30,076 22,970 7,106
55 33,037 22,970 10,587
60 36,289 22,970 13,839
65 39,862 22,970 17,412
Source: Westcoast Actuaries. For illustration purposes only.
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