The Individual Pension Plan

Transcription

1 The Individual Pension Plan STEP Canada Presentation April 16, 2013 W. C. Kennedy & Associates Inc. 1

2 Advantages of IPPs (same old) Depending on age & past service recognized by Members, large past service (pre 2013) deductible contributions and larger (than the 18% of earnings RRSP contribution) tax deductible contribution for 2013, upto 30% of earnings, Any Contribution can be made up to 120 days after fiscal year end and deductible in that fiscal year, Taking money out of the Company now & putting it in a creditor proof trust for the exclusive use for the owner/managers & family W. C. Kennedy & Associates Inc. 2

3 Advantages of IPPs (same old) All investment expenses (MERs) on assets in the IPP as well as interest paid on money borrowed to make contributions can be paid by and deduced by the Company, The contributions made by the Company are not subject to payroll taxes, Able to top-up contributions if the IPP incurs losses (such as investment losses) If set up properly, assets in the pension fund after the last to die of you and your spouse can be passed tax sheltered to the next generation allowing them to time the asset withdrawal and tax payable. IPP Trust Fund is creditor proof. W. C. Kennedy & Associates Inc. 3

4 Disadvantages/Risks (same old) Additional Compliance & annual fees each plan must be approved by Canada Revenue Agency (CRA) and annual filings and triennial reports (& fees incurred) need to be filed in order to validate contributions. Withdrawal Restrictions at Retirement- The individual cannot make a large lump-sum withdrawal and pay the tax, as is possible with an RRSP. (is this a Disadvantage or Advantage?) W. C. Kennedy & Associates Inc. 4

5 So who is the Ideal Candidate? Client must be incorporated & has paid & is paying T4 Earnings to owner/managers & then it depends on which of the advantages appeal to the Client: Larger contributions & Tax deductions than RRSP only, Estate/Retirement Planning larger contributions produce larger pensions than RRSP, Taking money out of the Company now & putting in a creditor proof trust for the exclusive use for the owner/managers & family, Top-up deductible contributions in the event of losses in the IPP W. C. Kennedy & Associates Inc. 5

6 Setting Up An IPP Whats Required An Incorporated Plan Sponsor who pays and has paid T4 Earnings (box 14) or T4PS to its owner/managers back to a maximum of Documentation Required: adopting Resolution, Plan Text, Plan Trust, initial actuarial report, CRA T510 & T1007s, FSCO Form 1; usually all documentation is prepared by the actuary, signed by the Company & submitted by the actuary. To CRA & FSCO. Investment advisor is chosen by the Company & investment accounts setup to invest contributions. W. C. Kennedy & Associates Inc. 6

7 Whats in it for you? FOR existing clients: Excuse for a client meeting to introduce a new idea that will take money out of the Company & set it aside in a 100% creditor proof trust fund for the exclusive use of the member and his family, and If you don t introduce the concept somebody else will W. C. Kennedy & Associates Inc. 7

8 Whats in it for you? FOR New Clients: A dynamite cold calling opportunity, you want to discuss Pension Income / retirement, estate planning issues If you re an investment advisor: it takes the discussion away from the usual - trying to differentiate your investment style and results vs their incumbent. Same ability to focus investment policy around Pension Income rather than rate-of return, $300,000 to $750,000 in new assets for every plan put in place, depending on past service recognized. W. C. Kennedy & Associates Inc. 8

9 Observations The single most important objective for many Business Owners is to create wealth for retirement sufficient to maintain lifestyle for the last years of life without having the worry of outliving one s money. And with a third of their lives still left to live, many are beginning to realize their retirement needs cannot be met by RRSPs alone. W. C. Kennedy & Associates Inc. 9

10 Transition Stages GO GO- Exit Strategy (50s/60s) - protecting my income - exit stategy/selling the business - estate plan SLOW GO-Slowing Down due to the Aging Process (70s/80s) NO GO- Health and the Potential affect on Finances (80s/90s) W. C. Kennedy & Associates Inc. 10

11 Transition.. the creation of a plan which takes the financial risk out of the Go -GO transition period so that he/she..can have the freedom to leave and/or work less at the business without having the worry of outliving one s money. W. C. Kennedy & Associates Inc. 11

12 Individual Pension Plan From a Retirement Planning Point of view, the use of an Individual Pension Plan will fit into the owners thinking W. C. Kennedy & Associates Inc. 12

13 Individual Pension Plan (IPP) Through an IPP, an incorporated client can use tax- deductible corporate contributions to fund a personal pension plan for him/herself (and spouse if applicable) retroactive to the date of incorporation (1991 or thereafter) thereby providing a source of guaranteed income for his/her retirement years. W. C. Kennedy & Associates Inc. 13

14 THE IPP & 2011 Budget (Much Ado about as it turns out nothing) Past Service: When setting up an IPP with 1 or more years of past service 3 numbers in respect of past service are calculated: 1. Accrued Liability 2. Qualifying Transfer, and 3. Unfunded Liability (1 minus 2) The Past Service contribution is simply the interest adjusted Unfunded Liability W. C. Kennedy & Associates Inc. 14

15 The IPP & 2011 Budget Old Qualifying Transfer (before budget) sum of the Pension Adjustments based on each years actual T4 Earnings for each of past service recognized (maximum back to 1991) ( Old Qualifying Transfer ) The 2011 Budget simply proposed changes to the way the Qualifying Transfer is calculated W. C. Kennedy & Associates Inc. 15

16 IPP & Amended 2011 Budget Qualifying Transfer (amended in Oct 2011) is calculated as the greater of: Old Qualifying Transfer, and PROPORTION x a plan member s existing Registered Retirement Savings Plan (RRSP) + RRSP Room PROPORTION = (Yrs Past Service) lesser(35, age 18) CRA simply amended the definition of PROPORTION in Oct 2011 from the June Budget. W. C. Kennedy & Associates Inc. 16

17 IPP & Amended Budget In the June 2011 Budget the PROPORTION was fixed at 100%; with the Oct amendment PROPORTION is now relating the RRSP balances to period of past service being recognized. As long as a members RRSP balances donot have any extraordinary amounts in them unrelated to their RRSP earnings such as Spousal contributions or commuted value transfers from previous pension plan participation the 2011 Budget has little or no effect SO IPPs ARE ALIVE & WELL W. C. Kennedy & Associates Inc. 17

18 Depending on age, maximum IPP contributions are well in excess of those allowed under RRSPs Current Age in Yrs to Age in Accrued Past Service Service Total IPP Retire 2013 Liability Contribution Contribution Contribution RRSP Contributio n , ,694 27, ,677 23, , ,971 30, ,710 23, , ,986 33, ,750 23, , ,303 37, ,392 23, , ,509 39, ,491 23,820 Note: The Qualifying Transfer is age independent and equal to $474,260 for a Member T4ing themselves in excess of $134,833 each year from 1991 through W. C. Kennedy & Associates Inc. 18

19 Contributions: IPP vs RRSP 50 Yr Old 250, , , ,000 50, RRSP Total IPP W. C. Kennedy & Associates Inc. 19

20 Account Balances Funds: IPP vs RRSP 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, RRSP Balance IPP Balance W. C. Kennedy & Associates Inc. 20