Chartered Investment Manager (CIM) Practice Exam · Question
Which statement accurately describes a key difference between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP) in Canada?
RRSPs offer tax-deductible contributions and tax-deferred growth, with withdrawals being taxable. TFSAs allow after-tax contributions to grow tax-free, and all
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Question: Which statement accurately describes a key difference between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP) in Canada?
Answer options:
- Contributions to a TFSA are tax-deductible, while RRSP contributions are not.
- Withdrawals from a TFSA are taxable, while RRSP withdrawals are tax-free. ✅ Contributions to an RRSP grow tax-deferred, and withdrawals are taxed, while within a TFSA, all growth and withdrawals are tax-free.
- A TFSA has a higher annual contribution limit than an RRSP.
Correct answer: Contributions to an RRSP grow tax-deferred, and withdrawals are taxed, while within a TFSA, all growth and withdrawals are tax-free.
Explanation: RRSPs offer tax-deductible contributions and tax-deferred growth, with withdrawals being taxable. TFSAs allow after-tax contributions to grow tax-free, and all withdrawals are also tax-free.
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