Deferred Profit Sharing Plans (DPSPs)

A DPSP is set up by your employer to help you save for retirement. You don’t make contributions – the company does, from a portion of its profits.

6 things to know about DPSPs

  1. DPSP contributions are tax-deductible to your employer. You won’t pay taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition on contributions until the money is withdrawn.
  2. Your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition are tax-sheltered. You don’t pay any tax on the earnings until you withdraw them.
  3. Your RRSPRRSP See Registered Retirement Savings Plan.+ read full definition contribution room is reduced by the DPSP contributions you received in the previous year.
  4. Companies often combine a DPSP with a pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition plan or Group RRSP to provide retirement income for employees.
  5. With most plans, you decide how your DPSP money is invested. Some companies require employees to buy company stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition with some of the contributions.
  6. When you leave your employer, your DPSP money can be transferred to an RRSP or RRIF, used to buy an annuity, or taken in cash (it will be taxed as income in the year you receive it).

Key point

A DPSP is a tax-sheltered plan funded by your employer from its profitsProfits A financial gain for a person or company. Equals the money left over after you subtract your costs from the money you made.+ read full definition.

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