Olivia, aged 35, earns $80,000 annually and expects her retirement income to be similar. She is choosing between contributing $5,000 to her TFSA or her RRSP. Which account would generally be more advantageous for her, given her current and projected retirement income levels?

Question: Olivia, aged 35, earns $80,000 annually and expects her retirement income to be similar. She is choosing between contributing $5,000 to her TFSA or her RRSP. Which account would generally be more advantageous for her, given her current and projected retirement income levels?

Answer options:

• RRSP, because she will likely be in a similar tax bracket in retirement, making the tax deferral beneficial.
• TFSA, because contributions are made with after-tax dollars, and withdrawals are tax-free. ✅ RRSP, because it allows for tax-deductible contributions, immediately reducing her current tax burden.
• TFSA, because it offers greater flexibility for withdrawing funds without penalty before retirement.

Correct answer: RRSP, because it allows for tax-deductible contributions, immediately reducing her current tax burden.

Explanation: Since Olivia expects to be in a similar tax bracket now and in retirement, the immediate tax deduction from the RRSP contribution is a key advantage, reducing her current taxable income without a higher tax rate on withdrawal.