Retirement Planning for Business Owners

As an owner of a business, you do have flexibility when it comes to creating a source of income in retirement, and you should consider each of these retirement savings options when planning for retirement:

At a Glance

Consider combining various strategies to maximize your retirement savings.

Maximize RRSP Contributions 
If you receive a salary from your corporation, this salary will be earned income for the purpose of making RRSP contributions. You can contribute 18% of your previous year's earned income up to a maximum amount for the current year, less your pension adjustment (PA) for the previous year.

Individual Pension Plans 
It may be possible to set up a pension plan for yourself, and other family members, known as an individual pension plan or IPP. For older business owners, the potential retirement benefits provided by an IPP can exceed the benefits provided by regular RRSP contributions. The rules are complicated, however, and these plans are more costly to run when compared to a conventional RRSP.

Redemption of Freeze Shares in Retirement 
If you implement an estate freeze, you will generally hold fixed-value preference shares after the freeze. Once you retire, these shares can be redeemed over time, providing you with dividend income from the corporation. These redemptions will also reduce the accrued gain that will be taxable on death.

Given that there is risk associated with all businesses, it is usually prudent to use some or all of the methods discussed to save for retirement. Should the business fail or experience cash flow problems, you should have other sources of income to fall back on.

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