A Personal Pension Plan (“PPP”) is a pension plan for one. It’s like a Registered Retirement Savings Plan (“RRSP”), but it has some advantages over an RRSP in the right circumstances.
The biggest advantage is simple: You can put more money into a PPP than into an RRSP.
If you own an incorporated business and are maxing out your RRSP’s every year, you should be looking at a PPP.
You may be a good candidate for a PPP if you fit the following criteria:
- Your business is incorporated;
- You are at least 40 years of age;
- You take a salary from the company every year instead of, or in addition to, dividends; and
- Your company has predictable, positive cashflow.
The PPP is a great retirement savings strategy for most business owners who meet the above criteria. But it can also be a great planning tool to help accomplish other objectives beyond retirement savings, such as:
Transition Planning – If you have a successor for your business in mind, but that person can’t stroke you a cheque today for the value of your business a PPP can provide a solution. With a PPP, you can strip value out of the business today, thereby reducing the purchase price making a sale of the business more affordable.
Creditor Proofing – Pension plans are creditor-proof. If your business should fall on hard times the assets you have moved into your pension plan are protected from creditors. They are also exempt from your creditors should you have to file for personal bankruptcy.
Tax Minimization – If you are looking to maximize your tax savings, a PPP can help with because you can claim larger deductions thereby lowering your corporate tax bill today. And you get to defer the tax consequences into retirement when you are likely to be in a lower income tax bracket.
The analysis required to ensure you’re a good candidate for the PPP and can take full advantage of the benefits is significant and complex. With Red Seal Financial, you get the benefit of a Certified Financial Planner (“CFP”) and a Chartered Professional Accountant (“CPA”) to help guide you through the process.