RRSPs are great, but when you start building real wealth in Canada, they might not be enough. The wealthy know this, and they have extra tools in their playbook. Today, I’ll show you three powerful strategies rich Canadians use to grow and protect their money.
1. Private Equity: A High-Stakes Investment Game
Private equity refers to investments in privately held companies that aren’t traded on public stock exchanges. These investments often involve funding startups, financing turnarounds, or supporting business expansions. Unlike traditional stocks, private equity carries higher risk, longer investment horizons, and limited liquidity—but it also offers the potential for significantly greater returns for investors willing to commit their capital for years.
Why Most Private Equity Can’t Be in an RRSP
RRSPs are primarily designed for publicly traded investments, which means they don’t typically allow direct ownership of private companies. The Canada Revenue Agency (CRA) restricts RRSP investments to public securities or select CRA-approved private equity funds. This means that unless you’re investing through a specialized structure, private equity investments need to be held outside an RRSP.
When Private Equity Can Be Held in an RRSP
Despite these restrictions, certain self-directed RRSPs provide access to private equity under specific conditions. These accounts allow investors to hold CRA-approved private equity funds, enabling them to enjoy tax-deferred growth.
A prime example is the Northleaf Capital Partners Private Equity Fund, a Canadian private equity fund available in some RRSP accounts. Also, Wealthsimple offers access to select private equity investments that is available through RRSPs as well.
This structure provides a way to tap into private markets while still benefiting from the tax advantages of an RRSP. However, you should carefully assess fees, liquidity restrictions, and overall risk before allocating any private equity within their RRSP.
Downsides of Private Equity Like any high-reward investment, private equity comes with notable drawbacks:
- High Fees: Private equity investments come with significant costs, including management fees and carried interest, which can take a big bite out of your returns. Before investing, it’s crucial to understand these expenses—they can dramatically reduce your profits over time.
- High risk: These investments are often highly illiquid, making them difficult to sell, and there’s always a risk of losing the entire investment. For example, many Canadian investors suffered losses when Walton International Group—a land syndication venture that fell under private equity real estate investing—filed for creditor protection in 2017 after amassing $67.3 million in losses over three years.
- Long lock-up periods: Investors must be prepared to commit their funds for extended periods, often between 5 to 10 years, before seeing any returns. Example: You invest $100K into private equity. Five years later, the company goes public, and you cash out for $300K—but during those five years, you couldn’t touch a dime.
Private equity is not for the faint of heart, but for those who are patient and strategic, it can be a powerful wealth-building tool.
Before we go onto our next strategy, one thing that almost all wealthy Canadians do is track their net worth. If you’re not tracking your net worth yet, check out my free Net Worth Tracker. It’s a simple way to stay on top of your finances.
2. Individual Pension Plans (IPPs): Finding the Right Fit for Your Retirement
What is an IPP? Imagine having a pension plan tailored specifically for you as a business owner or incorporated professional. That’s exactly what an Individual Pension Plan (IPP) offers.
Unlike an RRSP, which has a set contribution cap, an IPP lets you put away more money—especially if you’re over 40—while enjoying the same tax-deferred growth. It’s essentially a corporate-sponsored pension plan designed to provide structured retirement income, making it a go-to choice for high-income earners who want a more strategic way to save for the future.
How an IPP Replaces RRSPs
IPPs vs. RRSPs: An RRSP is like a savings account on steroids, but an IPP is like a personalized pension plan—structured, more powerful, and built for long-term security.
If you’re earning well and looking to maximize your retirement savings, an IPP might be a better fit than an RRSP. Here’s why:
- Less RRSP Contribution Room: Once you set up an IPP, your ability to contribute to an RRSP is reduced or eliminated. That’s because an IPP takes priority in pension contributions, making RRSPs less relevant for those relying on this strategy.
- Bigger Contributions: IPPs allow significantly higher contributions than RRSPs, particularly as you get older. This means you can put away more money, defer more tax, and grow your retirement savings faster.
- Reliable Retirement Income: With an IPP, your retirement withdrawals follow a structured, pension-like system. Unlike an RRSP, where you control how and when you withdraw funds, an IPP gives you predictable income, helping you plan more confidently for your golden years.
When an IPP Outperforms an RRSP: Real-World Examples
1️⃣ High-Income Business Owner:
Daniel, a 50-year-old business owner earning $250,000 annually, had already maxed out his RRSP contributions. Instead of being limited to the $31,560 RRSP cap (2024), he set up an Individual Pension Plan (IPP), allowing him to contribute over $50,000 annually. This strategy increased his tax deductions and significantly boosted his retirement savings, setting him up for long-term financial security.
2️⃣ Late Start to Retirement Savings:
Linda, a 55-year-old professional, realized she hadn’t saved enough for retirement but owned a corporation. By establishing an IPP, she was able to make past-service contributions covering previous working years. This move helped her rapidly grow her retirement fund while also reducing her corporation’s taxable income, maximizing both her business and personal wealth.
3️⃣ Corporate Tax Efficiency:
Ryan, a 40-something incorporated consultant, transitioned from an RRSP to an IPP for a more tax-efficient strategy. Since IPP contributions are considered a corporate expense, his company’s taxable income was reduced, leading to lower corporate taxes while ensuring a stable and secure retirement fund.
📖 IPP Success Story: One of our clients, a doctor, was maxing out his RRSP. After switching to an IPP, he increased his tax deductions by over 50% compared to his RRSP and secured a steady pension for retirement.
Setting up an Individual Pension Plan (IPP) can be complex, but it offers significant tax and retirement benefits. At Blueprint Financial, we guide business owners through the process, ensuring it fits their long-term financial goals. If you’re considering an IPP and want to understand your options, we’re here to help, so check out our website and book a free strategy section.
3. Family Trusts: To leave a legacy
When it comes to building and preserving wealth, RRSPs and Family Trusts serve different purposes, but they can also complement each other. While an RRSP is a personal, tax-sheltered retirement savings tool, a Family Trust provides greater flexibility in managing wealth, reducing taxes, and planning for future generations.
What is a Family Trust?
A Family Trust allows income to be distributed among family members in lower tax brackets, minimizing overall tax liability. Unlike an RRSP, which has strict contribution limits and must be withdrawn as taxable income upon retirement, a Family Trust has no contribution caps and offers more control over how and when money is distributed.
It can hold a variety of assets, including private equity, businesses, real estate, and other investments, making it a powerful tool for long-term financial planning.
How a Family Trust Replaces an RRSP
Because RRSP withdrawals are fully taxable, they don’t always provide the most efficient way to transfer wealth. A Family Trust, however, allows assets to be potentially be passed down tax-efficiently and enables income splitting among family members. This makes it an excellent strategy for business owners and high-income earners looking to reduce taxes while building generational wealth.
Key Benefits of a Family Trust Over an RRSP
✔ No contribution limits – Family Trusts can hold and grow significant wealth without annual caps.
✔ Tax-efficient income distribution – If structured correctly, income can be allocated to lower-taxed family members to reduce overall tax exposure.
✔ Wealth transfer advantages – Unlike RRSPs, which trigger full taxation upon withdrawal, a Family Trust allows for smoother and more tax-efficient intergenerational wealth transfers.
Family Trust Wealth Transfer: “Instead of passing down $1M and paying 50% tax, you can structure it in a trust and legally minimize taxes.”
How Family Trusts and RRSPs Work Together
Rather than choosing one over the other, many high-net-worth individuals use both to create a tax-efficient, multi-generational financial plan.
How They Complement Each Other
✔ RRSPs provide personal tax deferral, letting investments grow tax-free until withdrawal. Family Trusts, on the other hand, can potentially allow income splitting to minimize taxes.
✔ Using both provides balance—RRSPs offer structured retirement savings, while Family Trusts provide flexibility in distributing wealth.
Pro Tip for Family Trusts: “Use a corporate trustee if you’re worried about family disputes. It keeps things professional and avoids tension down the road.”
A Family Trust isn’t just for the ultra-wealthy—it’s a smart tool for anyone looking to manage wealth more effectively. When paired with an RRSP, it can enhance tax efficiency, protect assets, and provide financial security across generations.
Understanding how IPPs, Private Equity, and Family Trusts work can unlock huge tax savings and smarter wealth protection. If you’re a business owner or investor looking to optimize your finances, visit our website to explore our services. Check out my breakdown of the 3 RRSP Millionaire Secrets next!
