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Thursday, January 17th, 2019 technology  research  practice

A Practice Tip

  • Practice

2019 is here and rather than lament about funds you already spent in 2018, now is the time to get back on track and set savings goals.  Statistics say the average millionaire saves at least 20 percent of what they earn.  Are you on track to create real wealth for yourself in 2019? If you are an incorporated professional pay close attention to this tip:  There are still ways to save for retirement using your corporation even with the recent tax changes.  Consider the benefits of creating your very own personal pension plan.

 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.  The result is an owner of a legal corporation no longer has to rely on Registered Retirement Savings Plan’s (RRSPs) 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.

 WHY ARE IPPs SO POPULAR?

Incorporated legal professionals like the fact that the pension they will receive is known well in advance of their retirement date.  They also like that at age 50 the maximum contribution to an IPP is $7106 dollars higher than a traditional RRSP and is also creditor protected. They can also include past service to an IPP for years they did not contribute all the way back to 1991.  This can significantly increase what can be contributed to the plan along with increasing their tax deduction. IPPs can also be set up for the legal professionals spouse if the spouse is an income –earning employee of the corporation. Set up Fees are also tax deductible to the corporation.

WHAT IS THE TAX SAVING OPPORTUNITY?

 High Income Earners

Legal professional corporations who have income over $130000 will pay taxes over the 46 percent rate for each dollar they earn over that amount. If your income is over$220,000 you are now in the highest tax bracket of 52 percent. If you plan to maximize your RRSP contributions anyway this is an excellent vehicle to provide additional tax deductions and save for retirement while making the most of your 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.

Early Retirement

Legislation requires funding projections to be based on a 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.

Ideal Candidates

  • 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

Jackie Porter (@askjackieporter)

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