Top 10 Financial Concepts for Business Owners: #8 Plan for Your Own Second Act

Business owners have excellent focus on their business’ growth, but planning should also be done for the owner’s personal financial future. There are specific tax efficient retirement strategies that business owners can employ that ensure their own retirement is secure.

Individual Pension Plans (IPP) are employer-sponsored defined benefit pension plans with typically one or two members. An IPP must conform to the same rules and regulations as other pension plans. This includes the corporation being required to make regular contributions to the plan on behalf of the beneficiary of the pension. IPPs can be created by a corporation for an owner and/or key employees. The amounts that can be contributed to the IPP can be higher than the current maximum RRSP contribution limit, allowing a higher level of tax deductions for the company and more tax-sheltered savings accruing towards retirement for the individual.

A Retirement Compensation Arrangement (RCA) allows 100% tax deductible corporate dollars to be deposited on behalf of the business owner and key employees of the company. For the owner or employee, no tax is payable until the money is withdrawn in retirement. An RCA can be very useful for high income earners because the RRSP contribution limit prevents one from saving a proportionate amount of their income into their RRSP.

©2024 Milestone Wealth Management Ltd. All rights reserved.

Opinions and estimates are written as of the date of this report and may change without notice. Any commentaries, reports or other content are provided for your information only and are not considered investment or tax planning advice. Readers should not act on this information without first consulting Milestone, their investment advisor, tax advisor, financial planner or lawyer. This communication is intended for Canadian residents only and does not constitute as an offer or solicitation by anyone in any jurisdiction in which such an offer is not allowed.