A Deferred Profit Sharing Plan (DPSP) is a workplace savings program that many businesses use for employee incentives, or to help them save for retirement.
Only employers can contribute to a DPSP. The annual contribution limit is either 18% of the employee’s annual earned income or half of the money purchase limit (up to $15,390 for 2022), whichever is less. DPSP contributions made on behalf of an employee in a particular year reduce the employee’s Registered Retirement Savings Plan (RRSP) contribution room for the following year. For example, if an employer contributes $1,000 to a DPSP in 2022, the employee’s RRSP contribution room will decrease by $1,000 in 2023.
DPSP contributions grow tax-free while they’re in the plan but are taxed when the employee withdraws the funds.