IPP vs RRSP Calculator for Incorporated Owners
An individual pension plan can shelter more than an RRSP for an older owner on salary, and it costs more to run and locks the money in. Work out the gap, the corporate deduction, and how many years it takes the advantage to clear the fees.
extra room a year
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Side by Side
| Item | RRSP | Individual Pension Plan |
|---|
The Arithmetic Over the Years to Retirement
| Item | Basis | Amount |
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What an IPP Costs You Beyond the Fees
| Consideration | RRSP | IPP |
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Points That Decide This
What to Do Next
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Disclaimer: This page performs arithmetic on figures you provide and is not an actuarial calculation, a recommendation to establish or not establish a pension plan, or investment advice. An individual pension plan is a defined benefit registered pension plan, and the contribution permitted in respect of current or past service is determined by an actuarial valuation prepared by a qualified actuary using assumptions and methods prescribed under the Income Tax Act and its regulations and under applicable pension benefits legislation; it depends on the member’s age, the pensionable earnings history, the terms of the plan and the valuation assumptions, and it cannot be determined by a web page. The IPP contribution and past service fields on this page are therefore left at zero for you to complete from an illustration or valuation, and no figure is suggested. Registered retirement savings plan room is generally the lesser of a prescribed percentage of earned income and an annual dollar limit, reduced by a pension adjustment where the individual is a member of a registered pension plan; establishing an IPP generates a pension adjustment that reduces or eliminates RRSP room, and this page does not model that interaction. Funding past service commonly requires a qualifying transfer of registered assets, a reduction of unused RRSP deduction room, or both. Contributions by a corporation to a registered pension plan in respect of an employee are generally deductible subject to the Act’s limits and timing rules; whether the corporation has sufficient income to use a deduction, and the rate at which that deduction is worth something, depend on its own circumstances. A defined benefit plan creates a funding obligation: where a valuation discloses a shortfall the corporation may be required to make additional contributions, which is a liability an RRSP does not create. Plan assets are subject to pension legislation, including locking-in and permitted withdrawal rules, and are considerably less accessible than RRSP assets; the treatment of plan assets on marriage breakdown, death, insolvency and wind-up is governed by that legislation. Setup, administration, actuarial, investment and valuation costs are set by providers and vary; the figures here are placeholders. Growth figures assume a constant return that will not occur. Whether an individual pension plan is suitable depends on circumstances this page does not capture, and the decision warrants advice from an actuary and a qualified adviser. This page is general information, not tax, actuarial, pension, legal or investment advice.
Nobody Can Tell You the Number Without a Valuation
Pages that publish a table of IPP contribution limits by age are telling you something that looks like a fact and is not one. The permitted contribution comes out of an actuarial valuation using prescribed assumptions, your actual salary history and your age. It is a calculation an actuary performs, not a lookup.
So the contribution fields on this page are blank. What this page does is the arithmetic around the number once you have it: what the corporate deduction is worth, how it compares with RRSP room, and how long the advantage takes to clear the fees.
The direction is reliable even though the magnitude is not. IPP room generally exceeds RRSP room for an older owner on substantial salary, and the gap widens with age, because there are fewer years left to fund the same promised pension. That mechanism is sound. The dollars require an actuary.
It Only Works on Salary
This is the thing that disqualifies most people before anything else. Both RRSP room and IPP room are built on employment earnings. An owner taking dividends creates neither.
An owner who has been paying themselves in dividends for a decade to save payroll costs has no past service to fund and no current room either. Switching to salary to support an IPP has its own costs in payroll taxes, and that trade needs working through rather than assuming.
Past Service Is the Headline, and It Is Not Free
The attraction is usually the one-time past service contribution: a large corporate deduction for years of service since incorporating. It is real, and the way it is funded is where people are surprised.
Funding past service commonly requires transferring registered assets out of your RRSP into the plan, or giving up unused RRSP deduction room, or both. The deduction to the corporation is not simply free money; part of what pays for it is retirement savings you already had.
| What people expect | What usually happens |
|---|---|
| A large corporate deduction | Correct, that part is real |
| Funded entirely with new money | Often needs an RRSP transfer |
| RRSP room continues as before | A pension adjustment reduces it |
| Money stays as accessible | Pension assets are locked in |
A Defined Benefit Plan Creates an Obligation
This is the part that gets the least attention and deserves more. An RRSP is a bucket: what is in it is what you have. A defined benefit plan promises a pension, and if a valuation says the assets are short of the promise, the corporation may have to put more in.
In a good decade that is irrelevant. In a bad one it is a corporate liability arriving at the same time as everything else is difficult. Anyone considering an IPP should ask what happens in a deficit before asking what the deduction is worth.
And the money is locked in. Pension legislation restricts access in ways RRSP rules do not. For an owner who may want that capital back in the business, that is a serious constraint rather than a technicality.
The Fees Are Ongoing and They Matter at Smaller Numbers
Setup is one cost. The recurring one is administration and periodic actuarial valuations, every year, whether or not the plan did anything interesting.
Against a large contribution advantage those fees are trivial. Against a modest one they consume it. The break-even calculation on this page is the honest test, and for a younger owner or a smaller salary the answer is frequently that an RRSP is simply better.
Where an IPP Genuinely Earns Its Place
An owner in their fifties, on substantial T4 salary, with a corporation that has reliable profit, years of past service to recognise, and no intention of pulling the capital back out: that is the case the structure was designed for, and the advantage can be large.
Creditor protection under pension legislation is a real additional benefit for some owners, and the ability to fund more at retirement than an RRSP would allow matters to people who are behind. Those are genuine, and they are not reasons to skip the arithmetic.
| Situation | Usual answer |
|---|---|
| Under 40, moderate salary | RRSP, almost always |
| Paid in dividends, no T4 | Neither, until that changes |
| 45 to 50, high salary, stable profit | Worth an illustration |
| 50 plus, high salary, years of past service | The case it was built for |
| May need the capital back in the business | The locking-in is the problem |
What This Calculator Does Not Do
- Calculate the contribution, which needs an actuary
- Model the pension adjustment reducing your RRSP room
- Test eligibility or the plan terms
- Price the funding risk in a deficit
- Compare investment returns beyond a flat assumption
- Address the payroll cost of moving from dividends to salary
The compensation mix comes first. An IPP only makes sense on salary, so if the salary and dividend split is still open that is the prior question. Our tax planning service covers that trade and whether this is worth an illustration at all.
Frequently Asked Questions
Common questions on individual pension plans.
Related Calculators and Guides
More on owner compensation.
Work Out Whether It Is Worth an Illustration
An actuarial illustration costs money, so it is worth knowing first whether your age, salary and corporate profit put you anywhere near the case an IPP suits. Tell us the compensation position and we will say honestly whether this is worth pursuing or whether an RRSP does the job.