Smart strategies for a tax-effective retirement plan

#Life after work

Is an Individual Pension Plan or a Retirement Compensation Account right for your business?

It’s never too early to start planning a successful business transition – and your retirement. Whether your business succession plan includes transferring your business to a family member, or selling to a business partner or third party, it’s normal to have some concerns.

You may have some of these questions on your mind:

  • How can I provide a pension for myself, other family members or other executives?
  • How can I create a tax-effective strategy for now – and for later?
  • With all of the options available, which one is right for me?

A financial security advisor can work with you to develop a plan that keeps you in charge of your retirement.


Owning your plan – and your future

Your business is unique – your retirement plan should be too. The options can seem daunting and the calculations can seem complex. One entrepreneur’s plan may need the advice of a specialized tax lawyer or an actuary, but another plan may not.

You’re not alone; there is help available to customize your retirement plan. You’ve built a successful business and now’s the time to consider building a successful retirement strategy.

If you’re unsure about your retirement, one of these options may be the solution you’re looking for.

Individual Pension Plan (IPP)

What is it?

An IPP is a defined-benefit pension plan that can potentially increase your tax-efficient retirement savings and establishes long-term financial security.

Is it right for me?

If you’ve maximized your RRSP contributions and want a steady income stream in your retirement, then an IPP could be right for you.

How does it work?

IPP assets are usually creditor-proof. An IPP has greater contribution room than an RRSP and allows you to make contributions for past service. Your contribution room increases as you age and your contributions are tax-deductible to your corporation. There are also additional tax deductions available to your corporation, such as investment fees and actuarial fees.

What happens when I retire?

When you decide to retire, you’ll have options to access your IPP. These options could be a monthly pension from your IPP, an annuity, a life income fund or a locked-in retirement fund.

The calculations for an IPP can seem complex. But with careful planning, an IPP could be the strategy that works best for your business and your retirement.

You’ve built a successful business and now’s the time to consider building a successful retirement strategy.
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Retirement Compensation Arrangements (RCA) 

What is it?

An RCA allows your company to make tax-deductible contributions to a maximum level on behalf of owners or key employees for their retirement. Similar to an RRSP, an RCA can be attractive if you’ll be in a lower tax bracket during your retirement years.

Is it right for me?

If you’re an incorporated business owner or a current employee, your advisor can help you decide if an RCA is the right strategy for your retirement. RCA options also exist for long serving or key employees of a company and are often used when transferring a family business between generations. Another strategy could be to use an RCA to retain a key executive during the sale of your business.

How does it work?

With a higher contribution limit than many other savings strategies, RCA contributions are both tax-deductible for your business, as well as exempt from payroll taxes.

What happens when I retire?

Unlike other strategies that require withdrawals to start at 71, an RCA allows you to begin withdrawing at almost any retirement age. The assets would remain in a trust fund for your life. If you have a spouse or children, there are provisions available for you to name them as beneficiaries.

Canada’s Income Tax Act determines your business’s maximum allowable RCA contribution. An RCA could be a part of your tax-effective retirement plan.


Expert advice to ensure a smooth transition

It’s important to consult a trusted professional to ensure both your retirement and your business remain in good hands.

Financial security advisors understand how government-created retirement vehicles may fit into your retirement plan.

 After all, you’ve worked hard to build and protect your business during your working years. It’s good business sense to do the same for your retirement.

The information provided is based on current tax legislation and interpretations for Canadian residents and is accurate to the best of our knowledge as of the date of publication. Future changes to tax legislation and interpretations may affect this information. This information is general in nature, and is not intended to be legal or tax advice. For specific situations, you should consult the appropriate professional advisor.

How much should I contribute to my savings goal?

Plan for freedom today

Freedom 55 Financial security advisors are with you every step of the way. Not only will they guide you through the financial security planning process by focusing on your personal needs and goals, they’ll help you understand your options so you can make smart choices. And as your needs change, your financial security plan can change, too. That’s true financial freedom.

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