As you become more and more successful, you may wish to leave money in your business as retained earnings, since the income would be subject to top personal marginal tax rates if withdrawn. Retained earnings, however, may generate investment income to the corporation, in which case business investment income taxes may eliminate any tax savings. There are few methods for you as a business owner to move this money outside the corporation in a tax-effective manner.
An Individual Pension Plan represents one opportunity for owners to invest corporate dollars in their own retirement and may prove more effective than RRSPs. You can move money from the business into a registered plan and deduct the contribution as a business expense. The effectiveness of an Individual Pension Plan depends largely on your age and current earnings.
Other opportunities exist with the use of life insurance. One alternative uses the accumulated value in a life insurance policy to provide you with cash flow at a point in the future, such as at retirement, by serving as collateral for a bank loan. Tax-deferred accumulation of funds within the life insurance policy and tax-free access to those funds through the advances from the bank loan can make this financial planning concept an effective tax planning strategy.
A second alternative uses life insurance to support retirement income through the tax-deferred accumulation of funds within the policy and the opportunity to withdraw a portion of these funds to supplement retirement income.
Our firm can help by showing you tax-effective ways to use life insurance and other financial vehicles in order to provide for your retirement income needs. For more information, our office to schedule a free consultation.