If you're an incorporated business owner over 40, you've probably hit a familiar ceiling: your Registered Retirement Savings Plan (RRSP) contribution room maxes out, but your corporation's profits keep climbing. That gap between what you can shelter and what you're earning widens every year — and it's costing you real money in taxes. An Individual Pension Plan (IPP) is one way to close it, but it's not for everyone. Here's how to figure out which retirement savings vehicle fits your situation.
What is an Individual Pension Plan
An IPP is a registered defined-benefit (DB) pension plan designed for a single individual — typically an incorporated business owner or a "connected employee," meaning someone who owns 10% or more of the company's shares. Your corporation sponsors the plan and makes contributions on your behalf.
How it differs from a defined-contribution plan
The distinction matters. A DB plan like an IPP guarantees a predetermined retirement benefit. An actuary calculates how much the corporation needs to contribute each year to fund that benefit. A defined-contribution (DC) plan — which is what an RRSP effectively is — has no guaranteed payout. Your retirement income depends entirely on how much you contribute and how your investments perform.
The legal framework
Section 147.1 of the Income Tax Act governs IPPs, and they must comply with federal or provincial pension standards legislation, depending on the jurisdiction. The Canada Revenue Agency (CRA) registers the plan and sets the rules around contribution limits, investment restrictions, and reporting.
The T4 income requirement
Here's one detail that catches people off guard: you need T4 employment income to participate in an IPP. If you pay yourself entirely through dividends, you're not eligible. The corporation has to issue you a salary (or a combination of salary and bonus reported on a T4) for the plan to work.
How IPPs and RRSPs compare
Both IPPs and RRSPs are registered retirement savings vehicles with tax-deferred growth, but the mechanics are quite different. Here's how they stack up side by side.
Feature | IPP | RRSP |
|---|---|---|
| Plan type | Defined-benefit pension | Individual savings account |
| Who contributes | Employer (corporation) | Individual |
| Contribution tax treatment | Deductible to the corporation | Deductible to the individual |
| Investment control | Typically managed by plan administrator | Full individual control |
| Flexibility to withdraw | Restricted until retirement | Withdrawable anytime (with tax) |
| Annual administration | Required actuarial filings | None |
The most practical difference? When you contribute to an RRSP, the tax deduction flows to you personally. When your corporation contributes to an IPP, the deduction reduces corporate taxable income instead. For incorporated owners paying themselves a salary, that distinction can meaningfully change your tax planning.
IPP and RRSP contribution limits for Canadian business owners
RRSP contribution room is straightforward: 18% of your prior year's earned income, up to a maximum ($33,810 in 2026). That ceiling is the same whether you're 30 or 60.
IPP contributions work differently. An actuary calculates the required contribution based on your age, years of service, and target retirement benefit. Because the formula is age-weighted, IPP contribution room increases as you get older — and the gap between what you can put into an IPP versus an RRSP widens substantially after 45.
Age | IPP ($) | RRSP ($) | Difference ($) |
|---|---|---|---|
| 40 | 37,200 | 33,810 | 3,390 |
| 45 | 40,800 | 33,810 | 6,990 |
| 50 | 44,900 | 33,810 | 11,090 |
| 55 | 49,300 | 33,810 | 15,490 |
| 60 | 54,100 | 33,810 | 20,290 |
| 65 | ~55,500 | 33,810 | ~21,690 |
Pension Adjustment and RRSP room
One thing to know: IPP contributions generate a Pension Adjustment (PA) that directly reduces your available RRSP contribution room. The higher your IPP contribution, the less RRSP room you'll have. For most active IPP participants, remaining RRSP room drops to little or nothing.
Past service contributions
If you've been incorporated for years but are setting up an IPP now, your corporation can fund past service contributions — potentially going back to 1991. This is a significant feature of an IPP at setup, and we'll get into it below.
Advantages of an IPP over an RRSP
For incorporated owners over 40 with stable T4 income, IPPs offer structural advantages that RRSPs can't match. Here's what makes them worth considering.
Higher contribution room for older business owners
The age-weighted formula is the headline benefit. At 50, you can contribute roughly $11,090 more per year through an IPP than an RRSP allows. By 60, that gap exceeds $20,000 annually. Over a decade, that's hundreds of thousands of dollars in additional tax-sheltered retirement savings.
Past service funding opportunities
When you establish an IPP, your corporation can make a lump-sum contribution covering years of service going back to 1991. If you've been paying yourself a T4 salary for 15 or 20 years, this can translate into a significant one-time corporate tax deduction — sometimes six figures.
The corporation can pay this amount as a lump sum or amortize it over up to 15 years, depending on cash flow. Either way, it's deductible.
Creditor protection for incorporated professionals
IPP assets are held in a separate trust, which generally provides protection from creditors. That's a meaningful advantage if you're a physician, lawyer, engineer, or anyone else in a higher-liability profession.
RRSP creditor protection, by contrast, varies by province. In some jurisdictions, RRSPs receive limited or no protection outside of bankruptcy. If asset protection matters to your practice, the IPP structure is stronger.
Pension income splitting benefits
Income from an IPP qualifies for pension income splitting with your spouse or common-law partner at any age. That's a real tax planning advantage.
Registered Retirement Income Fund (RRIF) income, on the other hand, only qualifies for the pension income tax credit after you turn 65. If you're planning to retire before 65 — or you want maximum flexibility in how you split income — the IPP gives you more options sooner.
Note for Quebec residents: For provincial tax purposes, RPP/IPP pension income splitting is only available at age 65 or older.
Tax-deductible employer contributions
Every dollar your corporation contributes to your IPP is a deductible business expense. That reduces your corporation's taxable income directly — and the deduction happens at the corporate level, not the personal level.
Your corporation can deduct the actuarial fees, administration costs, and investment management fees on top of the contributions themselves. With an RRSP, those costs come out of your own pocket after tax.
Disadvantages and costs of an IPP
IPPs aren't the right fit for every incorporated owner. The administrative complexity and mandatory obligations mean they suit specific circumstances — and the costs are real.
Setup and annual administration fees
Setting up an IPP involves an actuary, a pension lawyer, and registration with the CRA and your provincial pension regulator. Expect setup costs of several thousand dollars. Ongoing annual administration — actuarial reports, filings, investment management — typically runs $1,500 to $2,000 or more per year.
Those fees are deductible to the corporation, but they're still money out the door. For smaller plans, the fees can eat into the tax advantage.
Mandatory actuarial valuations
Your actuary must file a valuation at least every three years (and sometimes annually, depending on the province). If your plan's investment returns fall below the assumed rate of return — typically around 7.5% — the corporation is required to make additional "top-up" contributions to cover the shortfall.
In a prolonged down market, those top-ups can become substantial. There's no option to skip them.
Less flexibility than an RRSP
IPP funds are locked in until retirement. You can't access them early the way you can with an RRSP. There's no equivalent of the Home Buyers' Plan (HBP) or the Lifelong Learning Plan (LLP) for IPP assets.
With an RRSP, you can withdraw funds at any time — you'll pay withholding tax and include the amount in income, but the money is accessible. The IPP trades that flexibility for higher contribution room and creditor protection.
Required employer contributions each year
Unlike RRSP contributions, which are optional, IPP contributions are mandatory. Your corporation has to make them every year, regardless of how business is going.
In a low-revenue year, that obligation creates real strain. Skipping contributions puts the plan offside with the CRA — and getting it back into compliance isn't simple or cheap.
Who should consider an IPP
Incorporated business owners over 40
The IPP advantage becomes meaningful around age 40 and grows significantly with each passing year. A T4 salary income is required — not a dividend-only compensation structure.
High-income professionals who've maxed out RRSP room
If you're an incorporated physician, dentist, or lawyer and your RRSP is already maxed, an IPP provides a second registered vehicle. It can shelter tens of thousands of additional dollars per year — money that would otherwise sit in your corporation earning investment income taxed at the passive investment rate.
Owners planning for business succession
If you're thinking about selling your business or transitioning it to a family member, an IPP creates some interesting planning opportunities. A family member can be added to an existing IPP under certain conditions.
There's also "terminal funding" — a final lump-sum contribution the corporation can make when winding down the plan, which creates a deduction that can offset taxable gains from the sale. It's worth discussing with your tax advisor well before any transaction closes.
Can you have both an IPP and an RRSP
Yes, you can hold both — but there's a catch. Because IPP contributions generate a PA, your RRSP room gets reduced accordingly. In practice, most people with an active IPP have little or no remaining RRSP contribution room.
Spousal RRSP contributions are limited by the same PA reduction. So if you're relying on spousal RRSP contributions as part of your retirement planning strategy, those will shrink once the IPP is in place.
What happens to your IPP if you sell your business
Your IPP is tied to the sponsoring corporation. If you sell the company, the plan doesn't automatically transfer with you. You've got three main options:
Wind up the plan: this is the most common route. The IPP assets transfer to a Locked-In Retirement Account (LIRA) or are used to purchase a life annuity.
Transfer to a new employer: this is uncommon and only works if the acquiring company is willing to take over sponsorship of the plan.
Terminal funding: the corporation makes a final contribution to fully fund the plan before winding up. This creates a corporate tax deduction that can help offset taxable gains from the sale.
All three options require professional guidance — from your actuary, your tax advisor, and likely a pension lawyer. Start the conversation well before the sale closes, not after.
How to decide between an IPP and an RRSP
When an RRSP makes more sense
An RRSP is probably the better fit if you're:
Under 40: the IPP contribution advantage is minimal at younger ages
Earning variable income: mandatory IPP contributions don't pair well with unpredictable revenue
Paying yourself through dividends: no T4 income means no IPP eligibility
Needing access to your savings: RRSPs let you withdraw anytime, and you can use the HBP or LLP
Preferring simplicity: RRSPs have no administration costs, no actuarial filings, and no annual compliance obligations
When an IPP is the better choice
An IPP is worth serious consideration if you're:
40 or older with stable, high T4 income: the contribution gap starts to matter
Already maxing out your RRSP: the IPP gives you room to shelter significantly more
Incorporated for many years: past service contributions can create a substantial one-time deduction
In a higher-liability profession: the creditor protection is structurally stronger
Planning to sell your business: terminal funding creates valuable tax planning opportunities
Comfortable with administration: you're willing to pay for actuarial filings and compliance
Frequently asked questions
Can I transfer my RRSP into an Individual Pension Plan?
Generally, no. Past service contributions are funded by the corporation, not by transferring existing registered funds into the plan.
What income level makes an IPP worthwhile?
IPPs typically become advantageous at consistent T4 income at or near $196,600 in 2026. A tax professional or pension actuary can model whether the additional contribution room justifies the costs for your specific situation.
How does an IPP affect CPP and OAS benefits?
IPP participation doesn't directly affect Canada Pension Plan (CPP) contributions or Old Age Security (OAS) eligibility. However, IPP retirement income may push your total income above the OAS clawback threshold — roughly $93,454 in 2026.
What happens to an IPP if the sponsoring business goes bankrupt?
The IPP must be wound up and assets transferred to a locked-in account or used to purchase an annuity. Provincial pension legislation may provide some protection, but the specifics vary by jurisdiction.
Can IPP investments be self-directed?
IPP investments must comply with federal pension rules, and a professional administrator typically manages them. Self-directed options are more limited than with an RRSP.
