Blogs & Comment

IPPs and RCAs for business owners

To follow up on my previous post, another reason for accumulating retirement savings outside of a business is to help protect owners and their dependents from business creditors. For this purpose, an individual pension plan (IPP) may be a better option than a registered retirement savings plan (RRSP), says tax and estate lawyer Christine Van Cauwenberghe in her book, Wealth Planning Strategies for Canadians: 2010.
Since IPPs are a form of registered pension plan, they are more creditor proof than RRSPs, she notes. Another benefit: executives over 45 years of age and earning at least $75,000 annually at an incorporated business are allowed to make larger tax-deductible contributions than allowed for RRSPs
Other aspects: IPPs may still be subject to a division of family property in the event of relationship breakdown. And they generally require regular contributions, which may be problematic if cash flow generated by the business is erratic.
If you are a very high income earner, retirement compensation accounts (RCAs) allow you to contribute even greater amounts to retirement savings. You can also borrow against a RCA and lend the money back to the company. There are other aspects to consider, as well.