Beyond IPP: Alternative Retirement Saving Strategies in Changing Times

Corporate Life Insurance, a wonderful asset that can be used to accumulate your retirement savings in a tax-exempt vehicle, which thereby keeps it away from tax changes that have cost owners quite a bit over the last 12 months.

IPP or Corporate Whole Life Permanent Policy?

“I’m planning to retire, and in this new tax regime I don’t know whether I should pay a higher salary, keep contributing to my RSP and set up an IPP in a company, or consider another alternative?”

Saving for Retirement

In light of the new tax changes that prohibit how we can split income for a family trust, or save tax efficiently in a holding company, many of my clients and accountants have been asking me what they should be doing when it comes to saving for retirement. It’s certainly a pertinent question and one that requires some serious thought.

The Tax-Efficient Alternative

There are, indeed, alternatives to explore, namely one that provides tax efficiency in your investments. I’m talking specifically about investing in a Corporate Whole Life Permanent Policy.

Change and Opportunity

While there is growing interest in Individual Pension Plans (IPP), the recent tax changes are a great opportunity to explore Corporate Life Insurance, a wonderful asset that can be used to accumulate your retirement savings in a tax-exempt vehicle, which thereby keeps it away from tax changes that have cost owners quite a bit over the last 12 months.

As I discussed in my previous blog, when you are ready to retire you can collateralize your policy and take a loan for investment purposes. However, you can also take a personal loan for consumption purposes and, in such cases, you could assign your corporate life insurance as collateral.

Personal Loan without the Taxable Benefits

As you are taking a personal loan and using a corporate asset, there are some shareholder benefits you should be aware of, but if properly planned, you can do so without triggering any of those taxable benefits or other concerns.

The result is that shareholders have access to capital, personally, without having to pay salary to themselves in tax or a dividend to themselves in tax. All you have to service is the interest on the loan, which is traditionally quite a bit cheaper than your tax rate.

Points of Comparison

For people who aren’t sure if they should go the IPP route or the Corporate Whole Life Policy path, there are some points of comparison that are very helpful.

IPP’s are expensive to set up, actuarily value and account for. While you do get a tax deduction, how you get it out is very rigid.

The Benefit of Insurance Strategy

However, in contrast, if you look at the insurance strategy, while you don’t get a deduction, there are no fees, no other bells and whistles, no actuarial values, and when you get the money out, it’s effectively tax-free!

Let MGF Advisory Help

If you would like to know more about retirement strategies using permanent life insurance and how it can work for you, we would be happy to help!

Marco Faccone, CPA, CA, CFP has long specialized in the area of corporately held insurance and estate planning, advising and assisting shareholders with succession and wealth accumulation strategies. Marco has worked alongside estate lawyers and tax accountants to offer his clients a professionally tailored and value-added plan. Contact MGF Advisory for more information regarding corporately held insurance and succession planning.

Categorised in: estate planning, insurance, investing

This post was written by Marco Faccone