IPP vs. RRSP: Which Is Better for Incorporated Professionals?

If you’re an incorporated professional or business owner in your 40s or older with a stable, high corporate income, you’ve likely heard the term Individual Pension Plan (IPP) mentioned as an alternative to your RRSP. The pitch is usually the same: higher contribution limits, more tax-deferred growth, and creditor protection. What’s often missing is a clear-eyed look at when an IPP actually makes sense — and when it doesn’t.

The Core Difference

An RRSP is a personal, self-directed retirement account with contribution room based on a percentage of your prior year’s earned income, subject to an annual maximum. An IPP is a formal, corporate-sponsored defined benefit pension plan — the corporation makes contributions on your behalf, based on an actuarial calculation of what’s needed to fund a target retirement pension, considering your age, income history, and years of service.

Because an IPP is a defined benefit structure, contribution room generally becomes more favourable than an RRSP as you get older — particularly past your mid-40s — since older individuals need larger contributions to fund the same target pension in fewer remaining years.

When an IPP Tends to Make Sense

IPPs are generally most attractive for incorporated professionals or business owners who are age 45 or older, have T4 employment income from their corporation near or above the maximum pensionable amount, and have a track record of consistent, stable corporate income to fund ongoing contributions. The corporation also benefits from a full tax deduction for contributions, and the plan itself offers creditor protection that a personal RRSP doesn’t provide in most provinces.

Where an IPP Falls Short

IPPs come with real trade-offs: they’re more complex and expensive to administer than an RRSP, requiring actuarial valuations and ongoing filings. They also require minimum funding — unlike an RRSP, where contributions are optional year to year, an IPP generally requires the corporation to make contributions to keep the plan properly funded, which reduces flexibility if the business has a slow year. And the additional contribution room advantage is minimal or nonexistent for younger business owners.

It’s Rarely an Either/Or Decision

Setting up an IPP typically means winding down further RRSP contribution room going forward, since the two interact. For many incorporated professionals, the right answer isn’t “IPP instead of RRSP” — it’s understanding at what point in your career and income trajectory the switch actually pays for itself, and whether the added complexity and reduced flexibility are worth the larger, more predictable retirement pension an IPP is designed to provide.

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This article provides general educational information and is not personalized financial, tax, or legal advice. Individual circumstances vary — book a meeting to discuss your specific situation.