By OptiVal Editorial Desk
If you own your corporation, pay yourself a salary, and max out your RRSP every year, you have probably had this thought: is there a legal way to shelter more than the RRSP allows? For a specific group of owner-managers, there is. It is called an Individual Pension Plan, or IPP, and the IPP vs RRSP comparison is one of the few places where the math genuinely changes after your 40th birthday.
An IPP is not a loophole and it is not for everyone. It is a real registered pension plan, and it comes with real costs and real strings attached. Here is how it works, what the numbers look like, and how to tell whether it fits your situation.
Helpful tool: Whether you stick with an RRSP or move toward an IPP, knowing your exact contribution room is the starting point. We built a TFSA, RRSP and FHSA Contribution Tracker for exactly this. You will find it under Templates & Tools: https://opti-val.ca/templates/
What an IPP actually is
An Individual Pension Plan is a defined benefit pension plan registered with the CRA, set up by your corporation with you as the member. The CRA’s definition is narrow: the plan has fewer than four members and at least one member is related to the employer (see CRA’s registered pension plan guide: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4099/registered-pension-plan-guide.html). In practice, that means it is a pension plan for the owner.
The mechanics differ from an RRSP in one fundamental way. With an RRSP, you decide how much to contribute each year, up to your limit. With an IPP, a licensed actuary calculates what your corporation must contribute to fund a promised retirement benefit. The standard promise is up to 2% of your best average T4 earnings for each year of pensionable service, subject to a CRA dollar cap ($3,932.22 per year of service in 2026). Because the cost of funding that promise rises as you get older, the required contributions get larger with age, automatically. The funding vehicle can hold the same kinds of investments an RRSP can: stocks, bonds, mutual funds and pooled funds.
Two gatekeeping facts. First, you must be an employee of your corporation earning T4 income. If you pay yourself only dividends, there is no pensionable salary to base the plan on. Second, the plan must be registered with CRA and re-valued by an actuary every three years, with annual filings in between. This is a pension plan with paperwork, not a self-serve account.
Related reading: our guides RRSP vs TFSA When You’re Incorporated and Holding Company Investing: The Basics.
IPP vs RRSP: the contribution math
For 2026, the RRSP ceiling is 18% of your 2025 earned income, capped at $33,810 (see the annual limits table: http://www.taxtips.ca/rrsp/rrsp-mpp-dpsp-contribution-limits.htm). You need about $187,833 of earned income to hit the cap, and once you hit it, that is it. No exceptions.
An IPP has no equivalent dollar cap on contributions. The actuary funds the promised benefit, and the older you are, the more each year of benefit costs to fund. The figures below are approximate and for illustration only (an owner earning $200,000 in T4 income; your actuary determines your actual numbers):
- Age 40: IPP about $38,000 vs RRSP $33,810
- Age 45: IPP about $44,500 vs RRSP $33,810
- Age 50: IPP about $53,200 vs RRSP $33,810
- Age 55: IPP about $64,800 vs RRSP $33,810
- Age 60: IPP about $80,500 vs RRSP $33,810
The crossover usually lands around age 40. After that, every year you stay in an RRSP-only strategy at the maximum is contribution room you cannot get back.
There is a second kicker: past service. An IPP can fund pension benefits for years you worked before the plan existed, going back as far as 1991. That usually means one large lump-sum contribution in the setup year, often funded in part by transferring your existing RRSP assets directly into the plan. If you have 15 or 20 years of T4 history behind you, the past-service contribution alone can dwarf a year of RRSP room.
The tax mechanics that actually matter
Contributions are deductible to your corporation and are not a taxable benefit to you. Growth inside the plan compounds tax-deferred, same as an RRSP. Benefits are taxed when you receive them in retirement.
Three differences are worth your attention:
Fees are deductible. Investment management fees inside an IPP are deductible to the corporation. In an RRSP, they are not. On a $500,000 portfolio with a 1% fee at a 26.5% corporate tax rate, that is about $1,325 a year in tax savings. Actuarial and administration fees paid by the corporation are deductible too.
Creditor protection. IPP assets sit in a separate trust and are generally protected from creditors, including outside bankruptcy. RRSP creditor protection varies by province and is thinner in several jurisdictions. For owners in higher-liability lines of work, this is a genuine consideration.
Pension splitting. Once IPP benefits start being paid, pension income can be split with a spouse, even before age 65.
The price of all this: once the plan exists, your new RRSP room effectively collapses to a token amount (about $600 a year) because the pension adjustment on your T4 eats it. An IPP is a replacement for the RRSP, not an add-on. And you cannot contribute to a spousal RRSP while you are a member.
Where the IPP falls short
The honest case against it:
Cost. Expect $3,000 to $6,000 in actuarial and legal fees to set one up, and $2,000 to $4,000 a year in ongoing administration. If your income is modest or your time horizon is short, fees eat the advantage.
Mandatory funding. Your corporation is legally required to make the annual contributions. An RRSP lets you skip a lean year. An IPP does not care that it was a lean year. Businesses with lumpy cash flow should think hard about this.
Lock-in. The money is locked in. No ad hoc withdrawals. At retirement it converts to a pension stream or a locked-in account. If you value flexibility, this will chafe.
It needs T4 history. Dividend-only owners are out. The whole calculation keys off pensionable salary, so if you have been paying yourself dividends for a decade, there is little to base a plan on.
Complexity. Actuarial valuations, CRA registration and annual returns, provincial pension rules. This is more moving parts than any RRSP.
Who should actually look at one
The profile where an IPP usually wins: you are over 40, you pay yourself a T4 salary of roughly $150,000 or more, you have 10 to 15-plus years of corporate employment history, your company’s cash flow is stable enough to fund the plan every year, and you already max your RRSP without blinking.
Skip it if you are under 40, if you pay yourself mostly dividends, if cash flow swings wildly, or if you might wind the company up within a few years. The setup costs and funding rigidity will punish you.
How to explore it without committing
- Get an IPP illustration from an actuary or IPP provider, using your actual T4 history and planned retirement age. This is usually free or low-cost and shows your real numbers.
- Review it with your accountant, because the corporate deduction interacts with everything else your company does, including salary-vs-dividend planning.
- If the numbers work, the actuary drafts the plan text, registers it with CRA, and sets up the funding vehicle. Your existing RRSP assets can usually transfer in to cover part of the past-service cost.
An IPP is the rare retirement vehicle that gets more powerful the older you get. For the right owner-manager past 40, the extra contribution room compounds into serious money over 15 or 20 years. For everyone else, the humble RRSP remains the better deal.
Want more plain-English guides? Browse the Learn hub: https://opti-val.ca/learn/
This article is general information for educational purposes. It is not financial advice and does not recommend any specific investment. Consider speaking with a licensed professional about your own situation.
