Individual Pension Plans for Incorporated Professionals
For an incorporated Canadian professional in their 50s, an Individual Pension Plan can shelter 30–50% more tax-paid retirement savings each year than an RRSP — and the corporation, not the owner, pays for most of it. Here is how an IPP works, who it actually fits, and where the RRSP still wins.
Meet the owner this article is about
Dr. Priya, 52, is an incorporated dentist in Calgary. Her professional corporation pays her a T4 salary of $180,000 and retains roughly $250,000 of after-tax profit each year. She already maxes her RRSP at $32,490, her TFSA at $7,000, and her spouse's TFSA. The corp's retained earnings sit in GICs and a corporate class fund. She wants to accelerate her retirement savings but has run out of personal tax-sheltered room. An IPP layered on top of her RRSP can move another $10,000–$30,000 of retirement money out of the corp each year — fully tax-deductible to the company.
What Is an IPP, in Plain Language?
An Individual Pension Plan is a defined-benefit (DB) pension plan registered with the CRA, sponsored by an incorporated employer, and covering usually one or two family members — the owner and, optionally, their spouse. Unlike an RRSP (defined-contribution), where you pick a dollar amount and the future benefit is whatever the investments deliver, an IPP works the other way around:
- The plan promises a retirement benefit — generally 2% of the member's highest-average earnings multiplied by years of credited service, capped by the CRA's maximum benefit accrual rate.
- An actuary calculates how much must be contributed each year so that, with a prescribed 7.5% rate of return, the plan will be able to pay the promised pension.
- The corporation makes those contributions, deducts them as a business expense, and the money grows tax-deferred inside the plan.
Because older members have fewer years left to fund the same promised pension, contribution room rises sharply with age. A 40-year-old earning the max T4 can contribute roughly the same as an RRSP maxer. A 60-year-old with the same income can contribute nearly double.
IPP vs RRSP Contribution Room
Illustrative figures based on 2026 CRA max benefit accrual and a 7.5% assumed return. An actuary will give you the exact number for your plan.
RRSP contribution room
$32,490
IPP corp contribution (current-service)
$42,900
Extra shelter vs. maxing an RRSP
+$10,410 per year
Roughly $5,205 in combined corp + personal tax savings at a 50% effective rate.
Does not include the one-time past-service buyback opportunity, which can add $100,000–$500,000 of additional tax-deductible room for members hired before the plan was set up.
The Past-Service Buyback: The Real Prize
Annual current-service contributions are attractive, but the bigger opportunity — and the reason most IPPs get set up — is the past-service buyback. The plan can credit the member with years of service that pre-date the IPP's creation, going all the way back to the corporation's incorporation date (or, in practice, 1991). Funding that past service requires a large one-time payment from two sources:
- The member transfers their existing RRSP (in kind or in cash) into the IPP. The CRA deems this the first source of funds, and it reduces the member's unused RRSP room by the same amount.
- The corporation contributes the shortfall — the difference between what the actuary calculates the past-service pension costs and what the RRSP transfer covered. This corporate top-up is a tax-deductible business expense.
For a 52-year-old who has run their corp for 15 years, the past-service shortfall funded by the corporation is often in the range of $150,000–$400,000. That is a one-time tax deduction for the corporation, plus the RRSP money moves inside pension legislation with stronger creditor protection.
Who Is an IPP Actually For?
IPPs are not universally better than RRSPs. The arithmetic only works for owners with all three of: an operating corporation, a real T4 salary, and an age where actuarial math gives them more room than $32,490. The clearest fits:
Incorporated physician or dentist
T4 income from their PC is stable and high; corp has retained earnings to fund past-service buyback.
Incorporated lawyer or accountant
Partnership distributions routed through a personal corp create a steady T4, and long career history makes past-service valuable.
Senior executive (age 50+)
Employer-sponsored IPP layered on top of a group RPP; most powerful when the exec is within 15 years of retirement.
Family-business owner (age 45+)
Can hire their spouse as a T4 employee and set up a second IPP — doubling household tax-sheltered retirement room.
What the IPP Salespeople Don't Lead With
⚠️ Setup and annual costs
Plan setup runs $2,500–$5,000. Annual trustee and administration fees are $1,500–$3,500. Every 3 years a new actuarial valuation is required ($1,000–$2,500).
⚠️ Locked-in retirement funds
Unlike an RRSP, an IPP is pension legislation. Money is generally locked until retirement. Early wind-up may be possible but the excess over commuted value cannot be refunded to the corp.
⚠️ RRSP contribution room is reduced
A past-service buyback requires the member to first transfer their existing RRSP into the IPP and give up a corresponding amount of unused RRSP room. Only after that can the corporation make the top-up contribution.
⚠️ T4 income is required
An IPP is only open to 'connected persons' who draw T4 employment income from the sponsoring corporation. Dividend-only owners do not qualify.
When Staying with the RRSP Is the Better Call
You're under 40
Current-service IPP room and RRSP room are roughly equal until your mid-40s. Setup and annual fees outweigh any benefit at this age.
Dividend-only remuneration
IPPs require T4 employment income. If your tax plan is built on dividends only, an IPP is closed to you until you start paying yourself a salary.
You may sell the corp soon
Winding up an IPP before retirement can trigger a surplus refund to the corp that is fully taxable, often eroding the deduction you originally claimed.
You need the liquidity
RRSP money is flexible — you can withdraw anytime (taxable), use the HBP or LLP, or contribute more in a high-income year. IPP funds are pension-locked.
Your Decision Checklist
Free
Confirm your corp pays you a T4 salary of at least $100,000 and you are age 40 or older. If either is not true, stick with your RRSP and TFSA for now.
$0
Ask your accountant to pull your corporation's GIFI-based retained earnings, cash balance, and how much comes from active business income. Past-service buyback cash has to come from somewhere.
$500
Request a free IPP illustration from an actuarial firm (Westcoast Actuaries, Integris, and INTEGRIS all offer them). Compare their current-service and past-service numbers to your RRSP room.
$3,000–$5,000
If the numbers work, set up the plan before December 31 of the year you want the first deduction. Past-service buyback can happen anytime after, but current-service starts when the plan is registered.
$1,500–$3,500/year
Budget for annual trustee fees, triennial actuarial valuations, and the CRA T3P/PSPA filings. Add the plan to your estate documents — spouse beneficiary and joint-and-survivor form of pension.
The Bottom Line
For Dr. Priya at 52, an IPP unlocks roughly $10,000 more of annual current-service room and potentially $200,000+ of one-time past-service deduction that her RRSP can never reach. She also shifts corporate tax-drag assets into a pension where the drag disappears. The plan costs her corp about $3,000 a year to run — a small price for a family that plans to retire within 15 years. Under 40, earning only dividends, or likely to sell the corp inside 10 years? Stay with the RRSP.
Project your RRSP, TFSA, and corporate wealth — see exactly where you stand