Personal Registered Pension Plans available to Canadian incorporated doctors & their families.
Understanding the Personal Pension Plan (PPP®)
The Personal Pension Plan (PPP®) is a solution for Candian for canadian business owners (including incorporated canadian doctors) offering the greatest tax deductions available under legislation and the maximum accumlated savings for your requirement – surpassing all other retirement savings methods like TFSAs, RRSPs and IPPs.
Let’s consider a 50-year-old doctor with 20 years of past service and average historical T4 income of $100,000/year, who expects to continue to work for the next 20 years earning a minimum $140,000 of T4 income. As per the graph to the left, under a PPP, this doctor will be retiring with an extra $1,660,000 in their retirement fund, compared to what would have been accumulated in their RRSPs alone.
How is this gap achieved?
regardless of your age, your annual RRSP contribution limit remains constant each year.
by contrast, as you get older, your annual PPP contribution limits grow and exceed those under RRSP rules. The table illustrates extra contribution allowed in the PPP at different ages. (you can set up your PPP as late as age 71)
And there is more…
Additional annual contributions explain a large part of the extra savings created by the PPP, but is only one of many additional factors that generate this wealth increase. Other pension-specific tad-deductions include: past service buy-back, special payments, fee deductibility, terminal funding etc, as illustrated in the infographic on the left.
contact me to find out more about the PPP and to prepare your own PPP illustration.
The Personal Pension Plan for the Incorporated Medical Practice
Dr. X and his wife Ms. Y both work for Dr. X. Professional Corporation.
Both withdraw a yearly salary of $138,500 with excess earnings paid as dividends.
If they made the maximum RRSP contribution from age 45 to age 65, and earned 7.5%, (paying fees of 1%), their combined RRSPs would be $2.8 Million.
If Dr. X and Ms. Y had Dr. X Professional Corporation sponsor a Personal Pension Plan for each, using the same assumptions, their combined pension assets would be $4.3Million.
Why is the PPP tailor-made for doctors?
Medical doctors are some of the most heavily-taxed health care professionals in Canada.
But because until 2004 they were not able to incorporate in Ontario,
they could only save through RRSPs which are capped at a lower level of contributions than pension plans.
The PPP allows medical professionals to enjoy the benefits of a pension without having to be part of a hospital since it is the professional medical corporation that pays for this benefit.