Sarah, aged 35, earns $85,000 annually and expects her income to rise substantially in the future. She is considering between contributing to an RRSP or a TFSA. Her primary financial goal is long-term growth for retirement. Which account would generally be more beneficial for Sarah given her income trajectory?

Question: Sarah, aged 35, earns $85,000 annually and expects her income to rise substantially in the future. She is considering between contributing to an RRSP or a TFSA. Her primary financial goal is long-term growth for retirement. Which account would generally be more beneficial for Sarah given her income trajectory?

Answer options: ✅ TFSA, because contributions are made with after-tax dollars and withdrawals are tax-free, which is advantageous for future higher income.

• RRSP, because contributions are tax-deductible now, and she will likely be in a higher tax bracket at retirement.
• TFSA, because it offers more flexibility for early withdrawals without penalty, which is important for unforeseen expenses.
• RRSP, because it allows for spousal contributions to split income, which is a key benefit for long-term retirement planning.

Correct answer: TFSA, because contributions are made with after-tax dollars and withdrawals are tax-free, which is advantageous for future higher income.

Explanation: Given Sarah expects her income to rise, contributing to a TFSA now allows her to benefit from tax-free growth and withdrawals later when she might be in a higher tax bracket, making it more advantageous than an RRSP where withdrawals would be taxed at a higher future rate. The TFSA offers tax-free growth and withdrawals, which is ideal if one expects to be in a higher tax bracket during retirement than during the contribution years.