What occurs to RRSP contribution room when contributions are made to a DPSP?

The correct answer indicates that the RRSP contribution room is reduced by the amount of contributions made to a Deferred Profit Sharing Plan (DPSP). This aligns with the broader framework of how pension adjustments and contributions work in Canada.

When an individual contributes to a DPSP, this contributes to their overall pension adjustments, which ultimately impacts their ability to contribute to an RRSP. Specifically, the amount contributed to the DPSP is considered in calculating the total contribution limits for Registered Retirement Savings Plans. Essentially, the RRSP contribution room decreases as a measure to balance the tax benefits received from both types of plans, ensuring that individuals do not over-contribute to their retirement savings in a way that would lead to excess tax-deferred growth relative to the annual limits set by the Canadian government.

Understanding this interaction is crucial for proper financial planning and compliance with tax regulations in Canada, as it ensures that individuals are aware of how their retirement savings strategies affect their overall contribution limits across their retirement accounts.