The IPP Advantage: Why the RRSP is No Longer Enough for Professionals Over 40

The Registered Retirement Savings Plan is the foundation of retirement planning for most Canadians. But for incorporated professionals earning substantial active business income, the RRSP has a structural flaw: its contribution limit is capped, regardless of how much income the professional generates or how close they are to retirement.

In 2026, the maximum RRSP contribution limit is $33,810. For a professional drawing a salary of $250,000, that $33,810 represents less than 14% of their gross income. The remaining surplus is typically left inside the Professional Corporation (PC), where it is exposed to the passive income rules.

Under ITA Section 125(5.1), passive investment income over $50,000 begins to grind down the small business deduction, pushing the corporate tax rate on active income from 12.2% up to 26.5% in Ontario. The RRSP simply does not offer enough tax-sheltered capacity for high-earning professionals to move significant wealth out of the corporation and into a protected retirement vehicle.

The Individual Pension Plan is a one-person, defined benefit pension plan designed specifically for incorporated business owners and professionals. Instead of the professional funding an RRSP with personal after-tax dollars (or salary that triggers personal tax), the corporation funds the IPP directly.

Because it is a defined benefit plan, the goal of the IPP is to provide a specific, predictable retirement income. To achieve that defined benefit, the Canada Revenue Agency allows the corporation to make contributions that are significantly higher than the standard RRSP limits.

The most powerful feature of an IPP is that its contribution limits increase as the professional gets older. While the RRSP limit remains a flat maximum of $33,810 for 2026, the IPP limit scales up to reflect the shrinking time horizon before retirement.

For a professional at age 40, the maximum IPP contribution is roughly equivalent to the RRSP limit (around 18% of pensionable earnings). By age 50, the IPP allows contributions equivalent to approximately 21% of earnings. By age 60, that figure climbs to nearly 29%.

Furthermore, when an IPP is established, the corporation can often make a 'past service contribution' - a large, one-time lump sum deposit to cover the years the professional was employed by the corporation before the IPP was created. This allows a cash-rich corporation to immediately move hundreds of thousands of dollars into a tax-sheltered environment.

Corporate Deductibility: All contributions made by the corporation to the IPP, including setup and ongoing actuarial fees, are fully tax-deductible to the business.

Passive Income Reduction: By moving surplus cash out of the corporation and into the IPP, the professional reduces the amount of capital generating passive investment income. This helps keep the corporation below the $50,000 passive income threshold, protecting the 12.2% small business tax rate.

Creditor Protection: Unlike corporate investment accounts, assets held within an IPP are generally protected from the creditors of the business, securing the professional's retirement capital regardless of corporate liability.

While the IPP houses the core retirement assets in a tax-deferred pension structure, the remaining corporate surplus should be invested using Corporate Class mutual funds. Because Corporate Class funds minimize taxable distributions (distributing no interest or foreign income), they prevent the remaining corporate capital from triggering the passive income grind.

Together, the IPP and Corporate Class funds create a dual-engine wealth strategy: the IPP maximizes tax-deductible contributions and creditor protection, while the Corporate Class portfolio provides liquidity, flexible capital growth, and tax-deferred rebalancing inside the corporation.

The ideal candidate for an IPP is an incorporated professional who is over the age of 40 (when IPP limits begin to outpace RRSP limits), and who draws a T4 salary from their corporation of at least $150,000 annually.

They should have consistent, predictable corporate cash flow to fund the required pension contributions, and want to aggressively shift corporate surplus into a protected, tax-deferred retirement vehicle.

For the high-earning professional, transitioning to an Individual Pension Plan in your 40s transforms how your corporation builds wealth - replacing an artificial contribution ceiling with a scaling, tax-deductible pension structure that protects both your retirement and your small business deduction.