IPP or RRSP?

If you are undecided whether to go for an IPP or an RRSP, then read on for here are the basic details of an IPP plan.

IPP

An IPP is a retirement plan that normally consists only of one or two contributors. This plan consists of a combination of assets which will provide income on the retirement of a single individual.

This type of retirement plan is normally set up for the benefit of a small business owner, or a partnership, but it may be also used for a business’ key employees.
Further details:

• An actuarial study should be completed every 3 years to establish funding needs for the subsequent 3 years.
• A yearly contribution is made by the company, for the employee. This contribution is eligible for tax deduction for the company.
• In the even that the employee retires before age 65, then he may also take advantage of terminal funding.
• Once reaching retirement age, the employee has 3 alternatives. 1. He may either choose to withdraw a pension from his savings amount. 2. He may commute his pension thus becoming accountable for his retirement income. 3. He may buy an annuity with his savings.
• Payments on this plan do not end with the passing away of the retiree’s spouse, but will go to the employee’s estate.

Plan benefits

IPP contributors will have an advantage over RRSP contributors, in times when the market is giving a weak performance, since legislation says that if the plan assets are less than what is required to meet earnings obligations, then the company may increment the contributions in order to increase the asset base.

The IPP is also a creditor protected plan and this feature provides supplementary advantages to professionals as well as small business owners.

Reference: http://familywealthmanager.blogspot.com/2009/04/ipp-vs-rrspbusiness-ownerstake-note.html