The RRSP remains a useful retirement tool after you incorporate. What changes is that a second option opens up. For some established owner-managers, an Individual Pension Plan, or IPP, can provide more deductible retirement funding than an RRSP, subject to its costs and restrictions. It is often called a "bigger RRSP," which captures the appeal and hides the trade-offs. Here is how it works, where it can come out ahead, and what it asks of you and your corporation in return. The comparison worth making is the after-tax retirement income each route produces once fees are paid, not the size of the deduction or the account balance. How much you have already built in retained earnings is part of that picture.
What an Individual Pension Plan actually is
An IPP is a registered, defined-benefit pension plan sponsored by your corporation for the benefit of you, its owner-employee. An RRSP is a defined-contribution arrangement: you put money in, and your retirement income depends entirely on how the investments perform. An IPP starts from the other end. It defines the pension the plan is designed to provide at retirement, and an actuary uses periodic valuations to work out the range of contributions needed to fund it.
Two things are worth keeping separate. The pension promise is the benefit the plan provides. The contribution requirement is how much the corporation must, or may, put in to fund that promise, and it depends on the plan's status:
- A plan registered under Ontario pension law must meet the Pension Benefits Act's funding rules, including regular valuations, typically every three years, and required contributions when the plan is underfunded.
- A plan that has elected out of the Ontario Act, which is available when all members are connected to the employer, has more discretion over the timing and amount of contributions. It still has to stay within the federal maximum-funding rules.
Under the federal rules, an employer contribution to a defined benefit plan is deductible only if an actuary recommends it as needed to fund the benefits, based on a valuation dated no more than four years before the contribution.
The IPP is designed for owner-managers and incorporated professionals who earn T4 salary from their corporation, most often those who own 10% or more of the company's shares, although high earners can also qualify in some cases. That describes many incorporated physicians and dentists. The plan is registered with the Canada Revenue Agency and must conform to the Income Tax Act.
How the limits compare
Both routes are limited, in different ways.
The RRSP limits new room. The dollar limit for 2026 is $33,810, which caps the new room added each year. Unused room carries forward, so someone with room saved from earlier years can contribute more than the annual limit in a single year.
The IPP limits the benefit and its funding. There is no flat annual contribution ceiling. Instead, the pension itself is capped, $3,932.22 per year of service for 2026, and contributions are limited to what an actuary determines is needed to fund that capped pension under prescribed assumptions.
The practical consequence is that around age 40, the maximum IPP funding and the RRSP limit are roughly comparable, and the gap widens from there. The closer you are to retirement, the more it costs to fund each year of pension, so the maximum deductible funding for a physician in their late forties, fifties or sixties can exceed the RRSP limit by a wide margin.
Larger deductible funding is not the same as a better outcome. The IPP's result depends on fees, investment returns, how long you stay incorporated, and how the pension is paid out and taxed. An illustration based on your own figures shows the actual gap, and you can compare the two paths with your own age and salary in the IPP vs RRSP calculator.
Past-service funding: the one-time catch-up
An IPP can recognize past service: the years you have already worked and drawn salary from your corporation, going as far back as 1991. Funding those years involves three separate pieces, and it helps to see them apart:
- RRSP transfer. Under rules in place since 2011, part of the cost of past-service benefits must first be met by transferring existing RRSP savings into the plan. This moves assets you already own; it is not a new deduction.
- Past-service pension adjustment. Recognizing past service creates a past-service pension adjustment, which can use up unused RRSP room you had carried forward. Giving up that room puts no money into the plan; it reflects that the pension now covers those years.
- Corporate contribution. The remaining cost can be funded by the corporation, and eligible employer contributions are deductible to it.
For an incorporated professional who has drawn T4 salary for a decade or more, the corporate piece can still be large, often larger than a single year of RRSP room.
Contributions are a corporate deduction
With an RRSP, your contribution reduces your personal taxable income. With an IPP, eligible contributions are made by, and deducted against, your corporation, apart from the RRSP savings transferred in for past service. That moves capital out of the corporation into a tax-deferred pension, and the administrative and actuarial fees to run the plan are generally deductible to the corporation as well.
Inside the IPP, assets can be rebalanced without triggering tax, and investment income earned in the plan does not count toward the corporate passive income that can reduce your corporation's small business deduction.
Where the deduction sits is not, on its own, the case for an IPP. Money that comes out of the corporation through a deductible pension contribution comes back to you later as taxable pension income, just as money deducted to an RRSP comes back as taxable RRSP or RRIF income. The difference between the routes is in how much each can shelter, what each costs, and how the income is paid.
Additional funding after investment shortfalls
The maximum funding for this kind of plan is calculated using a prescribed 7.5% investment return assumption. If the plan's investments earn less, a later valuation may show the plan is underfunded, and the actuary can then recommend additional contributions to make up the shortfall. Those contributions are deductible when they meet the federal rules.
This is not automatic. Additional funding depends on the plan's funding position at the valuation and on an actuary's recommendation, and a plan with a surplus beyond the permitted margin may not be able to accept further deductible contributions at all. The extra money also comes from your corporation. As you approach retirement, further "terminal funding" contributions may be possible if the plan is designed for them.
Secondary benefits worth noting
Pension income paid as a lifetime pension from the plan can generally be split with a spouse, subject to the pension income splitting rules. Family members who draw salary from the corporation can sometimes be added as plan members.
Creditor protection depends on how the plan is set up. In Ontario, a plan whose members are all connected to the employer can elect out of the Pension Benefits Act, and FSRA notes that an exempt plan loses the Act's creditor protection. Confirm which status your plan has.
An honest look at the trade-offs
The IPP is a useful tool, but it is not the right answer for everyone.
It carries real costs. Establishing an IPP typically runs in the range of $3,000 to $6,000 in actuarial and legal fees, with ongoing annual administration of roughly $2,000 to $4,000. Those fees reduce the benefit of the extra funding, so they only make sense at a sufficient scale of contribution.
It needs salary. An IPP is funded on the basis of T4 salary, so it works only if you draw a meaningful salary from your corporation rather than relying solely on dividends, and that decision carries its own payroll and CPP implications.
It asks for funding discipline. A plan under Ontario pension law can require contributions when it is underfunded, so the corporation needs reliable cash flow. An exempt plan has more flexibility over timing, but underfunding still means a smaller pension than planned unless the corporation adds money.
The money is restricted. IPP funds cannot be withdrawn freely. Tax rules limit how much can be moved out of the plan, and plans registered under Ontario pension law also lock in benefits. From age 72, the plan must pay out at least the RRIF minimum each year. Participating in an IPP also reduces the new RRSP room you earn through a pension adjustment.
Retirement payments are taxable. Pension payments from an IPP are generally taxable personal income in the year you receive them, as RRSP and RRIF withdrawals are. Sheltered growth and a corporate deduction today are worth what they leave you after that tax and after the plan's fees, which is why the comparison should be made on after-tax retirement income rather than on the size of the account.
For these reasons, the IPP's "sweet spot" is fairly specific: an incorporated professional roughly 40 or older, drawing a stable T4 salary of $100,000 or more (and increasingly compelling above $150,000), planning to remain incorporated through to retirement. For a younger professional, someone following a dividend-only compensation strategy, or someone who values maximum flexibility, the RRSP, or a different structure entirely, may be the better fit.
The bottom line
For an established incorporated professional who fits the profile, an IPP can allow more deductible retirement funding than an RRSP, recognize years already worked, and let the funding limit rise with age. Whether that produces more retirement income depends on fees, investment returns, the plan's status and how the pension is taxed when paid.
The RRSP stays useful after incorporation, and many owners will use both at different stages. The question worth asking is not only "Have I maxed my RRSP?" but "Would an IPP leave me with more after-tax retirement income, after its costs, than the RRSP and my corporation's own savings would?"
The only way to answer that with precision is an actuarial illustration based on your own salary history, age and corporate situation. If you are an incorporated physician, dentist or pharmacist and you have never had an IPP analysis run for you, it is a worthwhile analysis to run.
How that IPP analysis fits into the wider corporate and personal picture, compensation, passive income and insurance included, is described on the financial planning for physicians page.
