What reduction will result in Maxine's RRSP contribution room due to her purchase of pension credits?

When an individual purchases pension credits, it essentially increases the amount of pension benefits they will receive in the future. However, this transaction also has implications for their Registered Retirement Savings Plan (RRSP) contribution room.

In Canada, contributions made to a pension plan can be seen as a 'deduction' from the RRSP contribution limit, meaning that when pension credits are purchased, it reduces the individual's RRSP contribution room accordingly. The reduction in the RRSP contribution room is typically equivalent to the amount of pension credits purchased.

In Maxine's situation, if her purchase of pension credits results in a reduction of $6,500 in her RRSP contribution room, this amount reflects the value recognized by the tax authorities as the impact of her pension credit transaction. Therefore, the correct choice reflects this standard reduction amount associated with pension contributions, emphasizing the need for individuals to be aware of how pension savings can influence their overall retirement planning strategies.

Understanding this reduction is crucial for financial planning, allowing individuals like Maxine to maximize their retirement savings strategy while navigating the tax advantages associated with RRSPs and pension plans effectively.