For many incorporated business owners, the real retirement planning question is how to save more tax‑efficiently. If Registered Retirement Savings Plan (RRSP) room is largely used and corporate profits remain strong, an Individual Pension Plan (IPP) may be worth considering.

An IPP is a defined‑benefit registered pension plan set up for one individual, often an incorporated owner‑manager or professional, and it can provide larger deductible contributions and more tax‑deferred retirement accumulation than an RRSP alone.

The benefits of an IPP

The key tax advantage is that an IPP is funded by the corporation and those contributions are generally deductible to the company. In many cases, related expenses such as actuarial and administrative costs are also deductible. This makes the IPP fundamentally different from the usual approach of paying tax on personal income, then contributing to an RRSP and receiving a tax refund. For an incorporated owner with ongoing profits, an IPP can be an efficient way to move corporate dollars into a tax‑sheltered retirement vehicle.

An IPP can also permit more retirement savings room than an RRSP, especially as the business owner gets older. RRSP room is based on 18% of previous‑year earned income up to the annual maximum, which is $33,810 for 2026. By contrast, IPP funding is based on actuarial calculations tied to age, compensation and years of service, which often produces higher allowable contributions after about age 40.

Typical IPP candidates:

• Are incorporated business owners or professionals
• Approximately 40 to 68 years old
• Have consistent income
• Draw T4 income of roughly $180,000 or more

Often the strongest IPP candidate is someone salary‑paid through a corporation, who has stable cash flow, little meaningful RRSP room left and wants to accelerate retirement savings in a tax‑efficient way. IPPs are generally less compelling for younger owners, individuals paid mainly by dividends or businesses with inconsistent profitability.

A major advantage of IPPs is they can allow additional contributions that are not available through RRSPs. Depending on the circumstances, these can include past‑service contributions, special payments and terminal funding. For the right client, this extra flexibility can materially increase the amount of capital moved into tax‑deferred retirement savings.

Tax-free Savings Accounts (TFSAs) remain excellent planning tools, but they do not provide the same current corporate deduction opportunity as an IPP. For successful incorporated owners focused on reducing taxable income while building retirement assets, the IPP may be more powerful than relying on RRSPs and TFSAs alone.

The challenges of IPPs

There are, however, some drawbacks. IPPs involve setup costs, annual administration, actuarial valuations and ongoing compliance obligations, which make them more complex and more expensive than RRSPs or TFSAs. They are also generally locked in, meaning the funds are intended to provide retirement income and are not as flexible as personal registered plans. Locked‑in pension assets are ordinarily intended to provide lifetime retirement income rather than unrestricted access to cash.

The bottom line is that an IPP will not suit every business owner. But for the right one, it can be a highly effective planning tool. If you are an incorporated owner‑manager in your 40s, 50s or 60s, earn strong T4 income and are looking for more tax‑assisted retirement savings than an RRSP can offer, an IPP may be worth a closer look. A careful review today could create meaningful tax savings and a stronger retirement plan tomorrow. Speak with your Melo advisor about how an IPP could support your broader tax, compensation and retirement strategy.

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