Personal Pension Plan (PPP) – The best-kept secret in retirement planning?
Historically, owners, senior executives & many government employees were provided generous pensions that guaranteed lifetime retirement income. Their companies would make significant deductible contributions every year in order to fund a pension plan to guarantee a certain amount of income in retirement.
Did you know that your small business or professional corporation could do the same thing for you?
A PPP offers a solution for small business owners to create their own defined benefit pension so that while you are focused on your income today, you know you will be set for your future retirement.
Below is a summary of this powerful tool, including how it works, who it is right for, and the various tax and other benefits.
WHAT IS A PPP AND HOW DOES IT WORK?
- PPP is a personal pension plan that allows you to save more than a traditional RRSP
- PPP allows a business owner to fund their own pension plan through their business
- All contributions are deductible business expenses as are any costs associated with the pension plan (ie. Actuarial fees, management fees etc)
- PPP is similar to an IPP (Individual Pension Plan) but allows greater contribution flexibility
AM I A CANDIDATE FOR A PPP?
- Do you own a professional corporation or other business?
- Are you currently maximizing your annual RRSP contributions?
- Are you looking for ways to save additional monies on a tax-deferred basis for your retirement?
- Does your annual T4 income exceed $120,000?
If you answered yes to the above questions, then you are a candidate for a PPP
KEY BENEFITS OF A PPP
- Increase in contributions that can be made into a retirement fund to grow on a tax-deferred basis
- Ability to make a catch-up payment for an increased room in the first year of setting up of PPP, generating a large corporate deduction and a bump in asset base for tax-deferred growth
- Deductibility of fees and expenses related to PPP at a business level
- Terminal funding amount that can generate additional corporate deduction while providing significant funds for retirement
- PPP can be terminated and pension income initiated, prior to actual retirement
- Transferability of PPP if the company is sold without a hassle
- The flexibility of annual contributions in the event cash flow is limited in certain years
- Assets inside a PPP can pass from generation to generation without triggering a deemed disposition
- Assets inside a PPP are trade-creditor protected