Individual Pension Plan (IPP)
An Individual Pension Plan (IPP) is a powerful tax-deferred retirement savings tool.
An Individual Pension Plan (IPP) is designed for incorporated professionals — especially doctors and dentists — who are over 40 and earn a consistent high income through their professional corporation.
Here’s a detailed breakdown of the key benefits of using an IPP for a doctor or dentist in Canada:
1. Higher Contribution Limits Than RRSPs
IPPs allow larger annual contributions than RRSPs, especially as you age.
Contribution limits increase with age because they’re based on pension formulas and projected retirement income.
Example:
%
At age 50, you can contribute about $30,000–$40,000/year to an RRSP.
%
With an IPP, you might contribute $45,000–$55,000/year or more.
2. Fully Tax-Deductible to the Corporation
All contributions to the IPP are paid by your corporation and are 100% tax-deductible.
This includes:
- Annual contributions
- Past service contributions (if you incorporate after practicing for a few years)
- Special payments (e.g., for losses or terminations)
3. Tax-Sheltered Growth
Assets in the IPP grow tax-deferred, just like RRSPs.
Investment income is not taxed until the funds are withdrawn in retirement, when you may be in a lower tax bracket.
4. Enhanced Retirement Security
An IPP is a defined benefit plan, meaning it provides a predictable retirement income.
You’re not relying solely on market returns.
This makes it ideal for doctors and dentists seeking stable, pension-like retirement income.
5. Past Service Contributions
(Backdating)
If you were previously self-employed or paid yourself salary before establishing an IPP, you may be eligible for past service contributions.
This can create a large upfront deduction (sometimes over $100,000).
6. Terminal Funding at Retirement
When you retire, your corporation may be required to make a final lump-sum contribution (called terminal funding).
This can result in a significant final tax deduction and increase your pension benefits.
7. Creditor Protection
IPP assets are generally protected from creditors, unlike corporate retained earnings or open investments.
This adds a layer of security for doctors exposed to malpractice risks or legal claims.
8. No Payroll Taxes or CPP on Contributions
Unlike salary (which incurs CPP contributions), IPP contributions are not subject to payroll taxes.
This results in cost savings and more money staying in the retirement plan.
9. Corporate Asset Stripping Tool
An IPP allows you to move money out of the corporation into a protected, tax-deferred environment.
This is helpful for reducing passive investment income inside the corporation (which can reduce access to the small business tax rate).
10. Estate Planning Options
IPPs can include survivor benefits and guaranteed payments to your spouse or estate.
If structured correctly, unused funds may pass on to heirs, or be used to purchase a joint last-to-die annuity.
Summary
IPP vs RRSP for a Doctor or Dentist
| Feature | IPP | RRSP |
|---|---|---|
| Annual Contribution Limit (50-year-old) | ~$45,000–$55,000 | ~$31,560 |
| Paid By | Corporation | Individual |
| Tax Deduction | Corporate | Personal |
| Creditor Protection | Yes | Limited |
| Predictability | Defined benefit | Market dependent |
| Past Service Buyback | Yes | No |
| Terminal Funding | Yes | No |
Ideal Doctor or Dentist Profile for an IPP
Age 45+
Annual salary over $100,000
(not dividend-only income)
Incorporated with consistent cash flow
Wants maximized retirement savings and corporate tax efficiency
Prefers guaranteed income over market risk
This content is intended for general informational purposes only and does not constitute financial, legal, or tax advice. Individual Pension Plans (IPPs) are subject to specific rules and regulations under Canadian law, and the suitability of an IPP depends on individual circumstances. We are not tax advisors, and we recommend readers to consult with a qualified tax professional before making any decisions regarding pension planning.