Retirement Planning for Self-Employed Professionals: Beyond RRSPs (2025 Guide)

Executive Summary

Self-employed professionals face a unique retirement challenge: they receive no employer pension match, no employer benefits coordination, and no structured retirement planning support. Yet they often earn more than salaried counterparts and have greater control over their financial destiny.

The opportunity: with strategic planning, self-employed professionals can build retirement portfolios exceeding $1.5 million to $3 million by age 65—substantially more than most Canadians. The challenge: they must intentionally coordinate five separate retirement accounts (RRSP, TFSA, CPP, Spousal RRSP, and potentially an Individual Pension Plan), optimize between CPP/income splitting, and navigate complex tax rules around earned income and pension adjustments.

Most self-employed professionals default to RRSPs because they’re familiar. But this is suboptimal. A comprehensive retirement strategy for self-employed professionals typically involves: (1) mandatory CPP contributions (which most undervalue), (2) strategic spousal RRSP contributions for income splitting, (3) TFSA for flexible, tax-free growth, (4) an Individual Pension Plan (IPP) if incorporated and earning $100K+, and (5) careful coordination with a spouse’s retirement accounts.

This guide reveals the complete retirement toolkit available to Canadian self-employed professionals—going far beyond RRSP—and provides a step-by-step implementation plan to build a seven-figure retirement portfolio while minimizing taxes.

Part 1: Understanding Your Five Retirement Accounts

Self-employed professionals in Canada have access to five primary retirement savings vehicles. Most know about RRSPs. Few understand how to coordinate all five for maximum impact.

Account 1: Canada Pension Plan (CPP)—The Mandatory Foundation

What it is: A mandatory, government-guaranteed retirement pension funded by employee and employer contributions. For self-employed, you pay both portions.

2025 Contribution Requirements:

• Mandatory if age 18-70 and earn >$3,500/year
• Contribution rate: 11.9% of earned income (both portions combined)
• Earnings cap: First $81,200 of income only
• Maximum contribution: $8,860/year in 2025

Tax Advantage Often Missed:

• “Employer portion” (5.95%) = Tax-deductible
• “Employee portion” (5.95%) = 15% federal tax credit
• Net effective cost: ~65% of the stated 11.9%

At Retirement:

• Pension amount: Based on contribution history (roughly 25-30% of average earnings)
• Inflation-indexed: Annual COLA adjustment protects against inflation
• Guaranteed: Government backs all CPP obligations (vs. market risk with RRSPs)
• Shareable: Up to 50% can be transferred to spouse for income-splitting

Strategic Insight: CPP is the foundation of retirement security for self-employed. Unlike RRSPs (which depend on market performance and discipline to invest), CPP is guaranteed and inflation-protected. Yet most self-employed view it as “just a tax.” In reality, it’s the most valuable retirement insurance available.

Account 2: Registered Retirement Savings Plan (RRSP)—The Tax-Deferred Growth Engine

2025 Contribution Rules for Self-Employed:

• Contribution room: 18% of previous year’s earned income, maximum $32,490
• Critical distinction: Earned income for self-employed = Net business income (for sole proprietors) OR salary (if incorporated)
• If you take dividend-only: Zero RRSP room

Example of Earned Income Impact:

• Sole proprietor: $150K net business income → 18% = $27,000 RRSP room
• Incorporated, all dividends: $150K dividends → $0 RRSP room (dividends don’t count)
• Incorporated, $100K salary + $50K dividends → 18% × $100K = $18,000 RRSP room

Tax Benefit:

• Deduction at your marginal rate (30-53% depending on province and income)
• Growth inside RRSP: Tax-deferred (not taxed annually)
• Withdrawal: Taxed at rate when withdrawn (ideally lower in retirement)

Example for Ontario High-Earner:

• Contribution: $25,000 at 50% marginal rate = $12,500 immediate tax savings
• Growth: Assuming 6% annual return for 25 years = $107,000 additional
• Total value: $132,000 built on $25,000 contribution

Critical Strategy for Self-Employed: Spousal RRSP is more valuable than individual RRSP if you have income disparity with spouse (covered below).

Account 3: Spousal RRSP—The Income-Splitting Powerhouse

What it is: Higher-earning spouse contributes to lower-earning spouse’s RRSP. Higher earner gets deduction; lower earner gets taxed on withdrawal.

Why it matters for self-employed:
Self-employed professionals often have much higher income than spouses (especially if spouse took time off for children, part-time work, or lower-earning career). Spousal RRSP exploits this gap.

Tax Effect Example:

• High-earner spouse: $150K income, 50% marginal rate, contributes $25K to spousal RRSP
  • Tax deduction: $25K × 50% = $12,500 tax savings
• Low-earner spouse: Builds $25K in retirement account, eventually withdraws taxed at 25-30% rate
  • Tax on $25K withdrawal: $25K × 27% = $6,750 tax
• Combined tax savings: $5,750 vs. high earner withdrawing alone

30-Year Projection:

• Spousal RRSP: $25K annual contribution × 30 years, 6% growth = $2.3M portfolio
• When low earner withdraws in retirement (age 65+):
  • All withdrawals taxed in low earner’s hands at ~25% rate
  • Vs. high earner withdrawing alone at 50% rate = $575K in lifetime tax savings

Rules:

• Contribution comes from high earner’s RRSP room (both accounts share same limit)
• Lower earner owns account and is taxed on withdrawal
• Can contribute until end of year spouse turns 71
• Withdrawal within 3 years of contribution: Attributed back to contributor (anti-abuse rule)

Spousal RRSP Strategy for Self-Employed:

1. If you’re higher earner and spouse has lower income: Always prefer spousal RRSP
2. If you have 10+ years until retirement: Spousal RRSP becomes even more valuable
3. If spouse also has CPP income: Coordinate CPP sharing + RRSP splitting for maximum benefit

Account 4: Tax-Free Savings Account (TFSA)—The Flexible, Tax-Free Account

2025 Limits:

• Annual contribution: $7,000
• Cumulative (never contributed since 2009): $102,000
• Unused room carries forward indefinitely

Key Differences from RRSP:

• NO earned income required (can contribute regardless of income)
• Contributions NOT tax-deductible (no immediate tax savings)
• Growth IS tax-free (unlike RRSP where withdrawal is taxed)
• Withdrawal is tax-free and carries no tax consequence

Strategic Advantage for Self-Employed:

• Income fluctuates? TFSA unaffected (RRSP room varies with income)
• Need emergency access? TFSA penalty-free (RRSP withdrawal taxed)
• Want tax-free growth? TFSA grows tax-free forever; RRSP taxed on withdrawal

Withdrawal Strategy in Retirement:

• RRSP withdrawal: $100K withdrawal = ~$30K-$50K tax
• TFSA withdrawal: $100K withdrawal = $0 tax
• For same withdrawal amount: TFSA twice as effective

Example Sequencing:

• Age 35-65: Max RRSP, then max TFSA ($7K/year)
• Age 65+: First draw from TFSA (no tax), then RRSP (minimal tax in retirement)
• Result: Lower income means eligible for enhanced GIS and avoid clawing back OAS

Account 5: Individual Pension Plan (IPP)—The Premium Option for High-Income Incorporated Professionals

What it is: A defined benefit pension plan for incorporated owner/managers. Allows shelter of far more money than RRSP.

Eligibility:

• Must be incorporated (sole proprietors not eligible)
• Generally $100K+ annual T4 salary
• Age 40+ (older = better due to pension adjustment formulas)
• Need 10+ years remaining income

Contribution Room Advantage:

• RRSP: Max $32,490/year
• IPP: Can shelter $50K-$100K+/year depending on age and salary
• Net advantage: 2-3× more contribution room

Example (Age 50 Professional):

• Salary: $200K/year
• RRSP max: $32,490/year
• IPP potential: $70,000-$85,000/year contributions
• Additional shelter: $37K-$52K/year in tax-deferred growth

Tax Treatment:

• Employer contributions deductible from corporate income
• Growth: Tax-deferred
• Withdrawal at retirement: Taxed as pension income

Limitations:

• Funds locked-in at retirement (can’t just withdraw)
• Must purchase annuity or use Life Income Fund (LIF)
• Expensive to set up: $3K-$10K upfront
• Annual actuarial valuation: $1K-$3K/year
• Complex administration

When IPP Makes Sense:

• Incorporated professional earning $150K+
• Planning to work 10+ more years
• Want to accelerate retirement savings beyond RRSP limits
• Can afford ongoing administration costs
• ROI: Saving $30K-$50K/year in taxes typically pays for IPP costs within 2-3 years

Part 2: The Six-Figure Retirement Blueprint for Self-Employed

The Optimal Account Sequence (for $100K-$250K self-employed income)

Priority 1: Canada Pension Plan (Mandatory)

• Contribution: 11.9% of first $81,200 earned income = ~$8,860/year
• Cost: ~$5,760/year after deduction/credit (net ~65% of gross)
• Non-negotiable: This is your retirement foundation

Priority 2: Spousal RRSP (if married with income disparity)

• Contribution: 18% × your income, but to spouse’s RRSP
• Maximum: Up to your contribution limit (shared with own RRSP)
• Tax benefit: Your marginal rate (40-50%+)
• Example: $20K contribution at 50% rate = $10K tax savings, spouse builds $20K retirement account

Priority 3: Individual RRSP (remaining room after spousal contribution)

• Contribution: Remaining from 18% × income after spousal allocation
• Tax benefit: Your marginal rate (30-50%)
• Example: If 18% room is $30K and you did $20K spousal → Do $10K personal

Priority 4: TFSA ($7,000/year)

• Contribution: $7,000 annual
• Advantage: Tax-free growth, flexible access, helps manage retirement income
• Strategic withdrawal: Draw TFSA first in early retirement (keeps taxable income low)

Priority 5: Individual Pension Plan (if incorporated + $150K+ income)

• Contribution: $50K-$100K/year depending on age/salary
• Setup: 1-2 years to properly establish, then ongoing
• Best for: Accelerating retirement savings beyond RRSP limits

25-Year Retirement Savings Projection

Scenario: Self-employed professional, age 40, married, $150K net income, spouse earning $40K

Year 1-25 Annual Savings Plan:

1. CPP: $8,860 (mandatory)
2. Spousal RRSP: $18,000 (12% × $150K to spouse’s RRSP)
3. Individual RRSP: $9,000 (remaining 6% × $150K)
4. TFSA: $7,000 personal + $7,000 spouse = $14,000
5. Unregistered: $3,000 additional
6. Total annual savings: $52,860 (~35% of $150K net income)

Assumptions:

• 5% annual average return
• Salary/income remains consistent
• Both spouses make TFSA contributions
• No withdrawals until retirement

At Age 65 (25 years later):

Plus Government Programs:

• OAS (age 65+): ~$7,000/year indexed
• CPP sharing with spouse: Further income distribution
• Total Year 1 retirement income: ~$100K+ indexed, lifetime

Tax Impact in Retirement:

• Spousal RRSP withdrawals in spouse hands (low tax rate)
• TFSA withdrawals (tax-free)
• CPP shared with spouse
• Combined household tax on $100K: ~$20K vs. $40K+ if all in high earner

Part 3: Income-Splitting Strategies Beyond RRSPs

Strategy 1: Spousal RRSP + CPP Sharing

Coordinated Approach:

• Maximize spousal RRSP contributions while working (30+ years of contributions)
• At retirement: Share CPP with spouse (up to 50%)
• Result: Both spouses have roughly equal retirement income → Lowest combined taxes

Example at Retirement:

• High-income professional: CPP $28K + Spousal RRSP withdrawal $0 = $28K taxable income
• Lower-income spouse: CPP $14K (shared) + Spousal RRSP withdrawal $43K = $57K taxable income
• Both in similar tax bracket (40-45%) instead of one at 50%
• Tax savings: ~$15,000/year vs. no splitting

Strategy 2: Incorporate for Flexibility (Advanced)

For sole proprietors earning $100K+:

Option A: Remain sole proprietor

• Net income $150K → 18% × $150K = $27K RRSP room
• Must pay 11.9% CPP on $81.2K = $8,860
• No pension plan options

Option B: Incorporate

• Pay salary: $100K → RRSP room 18% × $100K = $18K
• Pay dividend: $50K → No RRSP room, but CPP only on salary
• Now eligible for Individual Pension Plan
• CPP savings: Pay only on $100K salary, not full $150K
• Net result: Trade $9K RRSP room for IPP capability (~$50K+ shelter per year)

When worth incorporating:

• Income >$120K/year and planning to work 10+ years
• Enough profit to cover additional accounting ($500-$1,500/year)
• Want access to IPP or pension plan

Strategy 3: Withdrawal Sequencing in Retirement

Optimal order to minimize taxes:

1. TFSA (first): Withdraw $7,000-$10,000/year
   • No tax impact, keeps taxable income low
   • Preserves GIS eligibility (income-tested)
2. Non-registered (second): Dividend income, capital gains
   • Dividend tax credit reduces tax rate
   • Capital gains only 50% taxed
3. Spousal RRSP (third): Spouse withdraws at lower tax rate
   • Lower-income spouse in 25-30% bracket vs. high earner at 50%
4. Own RRSP (fourth): Own withdrawals only if necessary
   • Taxed at full marginal rate

Result: Sequenced withdrawal keeps annual taxable income optimal (often $50K-$60K per person), maximizing government benefits and minimizing taxes

Part 4: Common Self-Employed Retirement Mistakes

Mistake 1: Defaulting to Personal RRSP When Spousal RRSP Available

The problem: Self-employed person contributes to own RRSP, then withdraws alone in retirement.

Example:

• Contribute $25K personal RRSP at age 40 (50% marginal rate = $12.5K tax savings)
• At retirement age 65: Withdraw $100K from RRSP
• Tax on withdrawal: 50% rate = $50K tax
• Net benefit: Only $2.5K ($12.5K deduction – $10K withdrawal tax spread over years)

The solution: 60% spousal RRSP, 40% personal RRSP (if married with income disparity)

• Spousal contribution: $15K (spouse’s lower tax rate on withdrawal)
• Personal contribution: $10K (your deduction at 50%)
• At retirement: Spouse withdraws $60K at 30% = $18K tax; You withdraw $40K at 50% = $20K tax
• Combined tax: $38K vs. $50K = $12K savings

Mistake 2: Ignoring CPP’s Value

The problem: “CPP is just a tax.” But it’s actually guaranteed, indexed retirement income.

Reality: A 50-year-old self-employed professional paying $8,860 in CPP is essentially buying a $28,000/year indexed annuity (present value ~$400K+). No personal investment can match that guarantee with so little upfront cost

The solution: Appreciate CPP contributions as insurance, not just tax

Mistake 3: Not Coordinating Spouse’s Retirement

The problem: Each spouse saves independently without considering income-splitting strategies.

Example:

• High earner: $100K RRSP contribution, 50% tax rate
• Low earner spouse: $7K TFSA contribution, sporadic savings
• Result: High earner has $400K in RRSP, low earner has $30K in TFSA
• At retirement: High earner withdraws full amount, pays 50% tax; low earner contributes nothing

The solution:

• High earner funds spousal RRSP for low earner
• Both contribute to TFSA independently
• Coordinate CPP sharing at retirement
• Result: Both in similar tax bracket at retirement, saves $10K-$20K/year in taxes

Mistake 4: Assuming IPP is Only for High Net Worth

The problem: Self-employed professionals earning $150K-$250K think IPP costs too much ($5K setup, $2K/year admin).

Reality: IPP allows additional shelter of $30K-$50K/year vs. RRSP. At 50% marginal rate, $40K additional shelter = $20K tax savings. Pays for itself in 2-3 years, then pure profit

The solution: If incorporated, earning $150K+, and have 10+ working years: Get IPP assessment (usually free initial consultation). Savings often exceed $20K/year

Mistake 5: Not Understanding Earned Income Impact

The problem: Incorporated professional taking all dividends thinks they have same RRSP room as salary earner.

Reality:

• Dividend income: RRSP room = $0 (dividends don’t count as earned income)
• Salary income: RRSP room = 18% × salary
• Professional earning $150K all dividends: No RRSP room at all

The solution:

• If incorporated and no RRSP room: Take at least partial salary to create room
• Example: $100K salary + $50K dividend = 18% × $100K = $18K RRSP room
• Or establish IPP (generates more shelter than RRSP anyway)

Part 5: 30-Day Implementation Plan

Week 1: Assessment & Baseline

Day 1-2: Document Current Situation

•  Gather RRSP statements (balance, contribution room)
•  Gather TFSA statements (balance, annual limit)
•  Check CRA My Account for RRSP deduction limit
•  Document income (T1 General, last year’s return)
•  Document spouse’s income and RRSP room

Day 3-4: Calculate CPP & Earned Income

•  Confirm net self-employment income
•  Verify CPP contributions made last year
•  Project CPP maximum ($8,860 in 2025)
•  Confirm earned income amount (affects RRSP room)

Day 5-7: Assess Spouse Coordination

•  Spouse’s income: Full-time, part-time, or none
•  Spouse’s RRSP room
•  Spouse’s TFSA room
•  Income disparity: High earner’s income vs. spouse (this drives spousal RRSP value)

Week 2: Strategy Development

Day 8-9: Evaluate Account Priority

•  Is spousal RRSP relevant? (If yes, prioritize this)
•  What is your RRSP contribution room?
•  What is your marginal tax rate? (Determines deduction value)
•  Are you incorporated? (Opens IPP option)

Day 10-11: Create Retirement Projection

•  Model 25-30 year savings plan
•  Estimate CPP benefit (use CRA My Service Account estimate)
•  Project RRSP growth (assume 5% annual)
•  Calculate retirement income needed

Day 12-14: Research IPP (if applicable)

•  Are you incorporated with $150K+ salary?
•  Working 10+ more years?
•  Get initial IPP assessment (most advisors free)
•  Understand setup costs and ongoing admin
•  Determine if ROI justifies implementation

Week 3: Consultation & Planning

Day 15-18: Engage Professional Advisors

•  Meet with accountant: Confirm earned income, RRSP room, tax optimization
•  Meet with fee-only financial planner: Build retirement projection model
•  If considering IPP: Meet with pension specialist
•  All meetings: Share retirement goals and income situation

Day 19-21: Finalize Strategy

•  Document recommended strategy (spousal RRSP, TFSA, CPP, etc.)
•  Confirm 2025-2026 action plan
•  Understand tax implications
•  Set annual review schedule (January each year)

Week 4: Implementation

Day 22-24: Open/Update Accounts

•  If needed: Open spousal RRSP account with financial institution
•  Confirm TFSA is open for both you and spouse
•  Update RRSP beneficiary designations
•  Review investment allocations (recommend 70% equity / 30% fixed income for age 40-50)

Day 25-28: Make First Contributions

•  Contribute to spousal RRSP (if applicable): $________
•  Contribute to personal RRSP: $________
•  Contribute to TFSA: $________
•  File with tax return (RRSP) or claim TFSA room (already tax-free)

Day 29-30: Document & Schedule Review

•  Create retirement binder (project, accounts, advisor contacts)
•  Schedule annual January review with accountant
•  Set calendar reminder: “Check RRSP room and plan 2026 contributions”
•  Update spouse on retirement plan

Conclusion: The Retirement Advantage of Strategic Planning

Self-employed professionals have a unique advantage: they can control their retirement destiny completely. No waiting for employer pension vesting, no hoping your company pension is properly funded, no relying on others’ decisions.

Yet this freedom requires intentional strategy. A self-employed professional who simply makes $150K/year and defaults to personal RRSPs might accumulate $800K-$900K by retirement (5.95% of gross income per year). The same professional using the complete toolkit—spousal RRSPs, CPP coordination, TFSA, and potentially an IPP—could build $2-$3 million.

The difference isn’t luck or inheritance. It’s understanding all available tools and deploying them strategically.

Your next step: Spend the 30 days outlined above to assess your situation, determine whether spousal RRSP is available, and calculate your projected retirement income. Then implement. Most self-employed professionals can improve their retirement trajectory by $500K-$1M+ simply by moving from default to strategic.

The time to start is now. Compound growth works best over 25-30 years. Every year delayed is a lost year of tax-deferred growth and missing spousal RRSP opportunities.

Article created for BOMCAS Canada, Edmonton & Sherwood Park. For questions about retirement planning strategies for self-employed professionals, investment coordination, or Individual Pension Plans, contact info@bomcas.ca or 780-667-5250.