IPP vs Retained Earnings: A Twenty-Year Illustration and Its Limits
Updated: Oct 4
Reviewed October 4, 2026.
A pension balance can grow faster than a taxable corporate portfolio under selected assumptions. That arithmetic is useful only if the permitted contributions, starting cash and eventual payout taxes are modelled consistently.
The hypothetical assumptions
Assume $100,000 of new pre-tax business cash is available at each year-end for 20 years. Assume a fully deductible $100,000 annual IPP contribution is permitted, an 8% annual gross return, a 20% active-business tax rate and a 50% immediate tax on every dollar of the corporate portfolio's investment return. These are modelling assumptions, not current tax-rate quotations or a statement that a particular person can contribute $100,000 to an IPP.
The accumulation arithmetic
Under those assumptions, $100,000 deposited annually at 8% accumulates to approximately $4,576,196 after 20 years. The corporate alternative invests $80,000 annually after the assumed active-business tax, at a 4% annual return after the assumed investment tax, accumulating to approximately $2,382,246.
The difference is approximately $2,193,950 before the missing items below. It is not a demonstrated increase in after-tax retirement wealth and does not prove that an IPP is the better choice for every owner-manager.
What the simplified figures leave out
The illustration excludes the actual actuarial contribution limit, registered-fund transfers, fees, pension funding obligations and personal tax on pension benefits. It also excludes refundable corporate tax recovered on dividends, the corporate portfolio's actual interest/dividend/capital-gain mix, deferred gains and personal tax on corporate distributions.
A real comparison must include those items, use the same opening assets and annual cash flows, and test lower returns. Existing retained earnings have already borne corporate tax; the assumed 20% tax applies to the new business earnings in this illustration.
An RCA needs its own model
An ordinary funded RCA generally directs half the gross contribution to refundable tax rather than the investment portfolio. Its investment income and gains are also generally subject to 50% refundable tax. Track the invested assets and refundable-tax account separately and model the refunds as benefits are paid. Do not reuse the IPP's 8% tax-deferred accumulation result for an RCA.
Keep estate and emigration planning separate
A pension contribution does not automatically solve an estate freeze, a business-sale valuation or departure-tax planning. Ownership, timing, permitted funding, the remaining corporate assets and the tax treatment of future benefits all require review.
Sources and further reading
Discuss your situation with Xponents
Contact Xponents to discuss the issue and the scope of a tax-planning review. Advice and implementation depend on your facts and the agreed engagement.
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