KEEPING AN EYE ON YOUR PENSION PLAN PRIZE
by Mike D’Alessandro
When Paul first came to me for a review of his portfolio, I could see it was solid but not taking advantage of opportunities for tax savings that would result in additional accumulated wealth.
Early in our discussions, I broached the fact that, as an incorporated business owner, earning a T4 income, he was in the perfect position to take advantage of a Personal Pension Plan (PPP®).
The PPP® offers Canadian business owners the greatest tax deductions available within current legislation as well as the maximum accumulated savings for your retirement – surpassing all other retirement savings methods like TFSAs, RRSPs and IPPs.
Now, Paul is not only going to be substantially wealthier than had he relied solely on an RRSP, but also his company will save significantly more in tax. In addition to this, Paul and his spouse are saving on personal tax each year through income-splitting that the PPP® allows. Even better, the fees are all tax deductable through the corporation.
As an incorporated business, Paul qualified for a PPP®, but was unaware of the value it provided for savings, retirement planning and more.
Simply stated: for streamlining tax and savings, PPP®s are one of the most overlooked opportunities for incorporated business owners.
LET'S TAKE A LOOK AT PAUL'S POSITIONING AND THEN DISCUSS SAVINGS:
Client Profile: Paul (name changed for privacy)
Incorporated Business Owner
Paul is 50 years old with 20 years in the work force, a corporate income of $500,000 and an average historical T4 income of $150,000/year.
He expects to continue working for the next 20 years earning at least $150,000 of T4 income.
Under the PPP®, Paul will be retiring with an extra $1.16 million in a joint pension plan with his spouse. Compare this to what would have accumulated through an RRSP program (see illustration).
HERE ARE SOME OTHER BENEFITS OF A PERSONAL PENSION PLAN:
Any contribution into your pension is a tax-deductible expense to your company
Investment options are no longer restricted as they were within an RRSP. Personal Pension Plans have broader investment options than do RRSPs, which are subject to rules and regulations for asset investment.
Compared to an RRSP, a Personal Pension Plan allows up to 60% greater tax deferred compounding until the individual retires.
Fiduciary oversight is provided by a team of pension lawyers coupled with the highest level of creditor protection in Canada. Click here for more information
Annual PPP® contribution limits grow as you get older (exceeding those under RRSP rules). In contrast, regardless of age, your annual RRSP contribution limit remains constant each year.
A Personal Pension Plan allows you to deduct investment management fees, while RRSPs do not.
These are all impressive wins and there are even more when clients reach the age of 55 or are considering inter-generational wealth transfers, which I’ll discuss in a future post.
Clearly, Paul’s investment of time and curiosity paid off.
ARE YOU READY FOR A PPP® AS AN INCORPORATED BUSINESS OWNER? TAKE THE TEST BY ASKING YOURSELF THESE THREE QUESTIONS:
• Do I want to maximize my retirement income?
• Do I want the tax refunds to pay for the cost of the program instead of coming out of my pocket? • Do I want to pay less tax than 98% of Canadians?
* Are you an incorporated business owner?
An incorporated business is the legal definition of how you operate your business and can cover a multitude of businesses, with the exception of a sole proprietor. We don’t often think of physicians (family doctors or specialists) as business owners, but they can in fact be incorporated businesses. Other incorporated businesses include dentists, lawyers, accountants; all professional services providers allowed a professional corporation. Others include manufacturers, auto dealers, business owners, service and hospitality owners, incorporated farms and many more. ~
Mike D’Alessandro, Partner,
Park Place Financial
Mike D’Alessandro, CFP, co-founded Park Place Financial in 2012 in Peterborough, Ontario. Under his leadership, Park Place Financial has grown to be one of the most respected wealth management firms in Central and Eastern Ontario, with locations in Durham, Belleville, Peterborough and Kingston. With over 15 years of experience in financial, succession and business planning, Mike is recognized for specializing in wealth generation and preservation strategies for motivated professionals, entrepreneurs and high net worth clients, working with their teams to optimize their corporate structure with tax efficient strategies.
Mike lives in Ennismore with his wife and young children.
Founded in 2012, by Mike D’Alessandro and Darrell Wade, Park Place Financial grew quickly to become one of Central and Eastern Ontario’s top wealth and estate planning firms. Its mission, to be known for excellence in helping grow and preserve the wealth accumulated by family business owners and entrepreneurs across multiple generations. In 2018, Terry Windrem Insurance Agencies joined Park Place Financial, firmly positioning the business as an industry leader in wealth and risk management.