Enhance your retirement income using an IPP

Professional Wealth Management Since 1901

An Individual Pension Plan (IPP) is a defined benefit pension plan established by an incorporated company

typically for one individual. An IPP may enable you to make higher tax-deductible contributions than the

maximum permitted for Registered Retirement Savings Plans (RSPs) and enhance your retirement income.

You should consider this strategy if:

n You are a business owner, incorporated professional or key

employee

n You have annual T4 income of at least $116,000

n You are between the ages of 40 and 71

STRATEGIC TAX PLANNING

n With an IPP, you have several retirement income options:

• Receive a pension payment from the plan

• Transfer all or part of the IPP to a registered product

• Purchase an annuity

PLANNING TIP

n Boost your personal retirement savings

n Contributions and expenses are tax-deductible for your corporation

KEY BENEFITS

ADVANTAGES CONSIDERATIONS

n Contribution limits are generally higher than RSP’s

n All contributions are tax deductible by your corporation

including:

• Contributions for past service, if applicable

• Current service contributions

• Top-up contributions to make up for low investment

returns

• Terminal funding contributions, if applicable

n Related expenses are tax deductible to your corporation

n IPP assets are generally protected from creditors under

provincial pension legislation

n Ability to do succession planning for family members

working in the business

n Effective 2007, up to 50% of the qualified pension income

received can be split with your spouse for tax purposes

n Income splitting in the form of a spousal IPP is not available,

although your spouse may participate if also an employee of

the company

n IPPs are subject to pension legislation at both the federal

and provincial levels, requiring that their funds be locked in

(except in certain provinces)

n Administration costs, including set-up fees, annual reports

and actuarial valuations that need to be filed every three to

four years

n If the plan develops a deficit, your company will be

responsible for additional funding to maintain registration

(except in certain provinces)

n If the plan develops high levels of surplus, future

contributions may be limited

n The value of your company will be lower as more money has

been used to fund the IPP

Professional Wealth Management Since 1901

This report is not intended as nor does it constitute tax or legal advice, is provided for illustrative purposes only and may not be suitable for your personal financial circumstances or objectives. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. The information in this report is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor and your accountant, tax advisor or legal counsel, as applicable. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information and tax rules. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member CIPF. ®Registered trademark of Royal Bank of Canada. Used under licence. RBC Dominion Securities is a registered trademark of Royal Bank of Canada. Used under licence. ©Copyright 2008. All rights reserved. (03/08)

Strategy in action

STRATEGIC TAX PLANNING

Age in 2008

Maximum 2007 RSP

contribution

Maximum 2007 current IPP

contribution

Maximum past service employer

contribution

Maximum first year tax-deductible IPP

contribution

40 $20,000 $21,828 $ 52,960 $ 74,78850 $20,000 $26,340 $127,595 $153,93560 $20,000 $31,778 $217,552 $249,33070 $20,000 $52,875 $566,512 $619,387

Projected values

Year AgePast

serviceAnnual

contributionsTotal RSPand IPP

RSP only IPP

advantage

RSP Transfer $305,4002008 50 $127,392 $ 26,340 $ 492,097 $ 349,041 $ 143,0562009 51 $ 28,320 $ 558,989 $ 396,993 $ 161,9962010 52 $ 30,442 $ 633,098 $ 449,577 $ 183,5212011 53 $ 32,724 $ 715,131 $ 507,360 $ 207,7712012 54 $ 35,176 $ 805,860 $ 570,800 $ 235,0602013 55 $ 37,820 $ 906,134 $ 640,395 $ 265,7392014 56 $ 40,655 $1,016,868 $ 716,682 $ 300,1862015 57 $ 43,702 $1,139,066 $ 800,245 $ 338,8212016 58 $ 46,977 $1,273,825 $ 891,715 $ 382,1102017 59 $ 50,508 $1,422,351 $ 991,775 $ 430,5762018 60 $ 54,293 $1,585,942 $1,101,164 $ 484,7772019 61 $ 58,362 $1,766,020 $1,220,683 $ 545,3372020 62 $ 62,736 $1,964,140 $1,351,197 $ 612,9432021 63 $ 67,451 $2,182,008 $1,493,643 $ 688,3652022 64 $ 72,507 $2,421,457 $1,649,033 $ 772,424 2023 65 $ 54,441 $2,660,171 $1,818,462 $ 841,7092024 66 $ 58,521 $2,921,021 $2,003,115 $ 917,9062025 67 $ 62,919 $3,205,998 $2,204,271 $1,001,7272026 68 $ 67,635 $3,517,241 $2,423,315 $1,093,9262027 69 $ 72,704 $3,857,086 $2,661,742 $1,195,3442028 70 $ 78,153 $4,228,073 $2,921,169 $1,306,9042029 71 $ 84,027 $4,632,978 $3,203,341 $1,429,637

The strategy: establishing an IPP

Below is a table comparing the available contribution room for RSP versus IPP

at different ages, assuming past service to 1991, $116,667 annual income and an

RSP transfer of $305,400.

The following example illustrates how an ideal IPP

candidate can increase their retirement savings by

over $1.4 million – while at the same time generating

significant tax deductions for their corporation.

Assumptions*

n 50-year-old male

n Date of hire: January 1, 1991

n IPP effective date: January 1, 2008

n Current and past salaries: $116,667

n Non-spousal RSP available for transfer

n Investment rate of return 7.5%

n Salary increases at 5.5%

*Not all assumptions are provided in this simplified illustration.

The issue: Even maximizing your retirement contributions to a RSP may not provide sufficient income to meet your retirement needs. The IPP may allow you to enhance your retirement income through additional tax efficient contributions.Most financial planners assume that you will

need approximately 70% of your pre-retirement

income to maintain your lifestyle in retirement.

Unfortunately, current RSP or Registered

Pension Plan contribution limits can make this

impossible for high income earners.

In conclusion, for this ideal client,an IPP increases the tax-shelteredretirement savings by a minimum

of $1,429,637.