Maria, 45, is evaluating her retirement savings options. She currently contributes to an RRSP. Her financial advisor discusses the benefits of a Tax-Free Savings Account (TFSA) given her current tax bracket and future income expectations. Which statement accurately describes a key advantage of a TFSA over an RRSP for someone anticipating a potentially higher tax bracket in retirement?

Question: Maria, 45, is evaluating her retirement savings options. She currently contributes to an RRSP. Her financial advisor discusses the benefits of a Tax-Free Savings Account (TFSA) given her current tax bracket and future income expectations. Which statement accurately describes a key advantage of a TFSA over an RRSP for someone anticipating a potentially higher tax bracket in retirement?

Answer options:

• TFSA contributions are tax-deductible, reducing current taxable income. ✅ Withdrawals from a TFSA in retirement are tax-free, unlike RRSP withdrawals.
• TFSA offers a larger contribution limit than RRSP for most individuals.
• Investment losses within a TFSA can be used to offset other taxable income.

Correct answer: Withdrawals from a TFSA in retirement are tax-free, unlike RRSP withdrawals.

Explanation: TFSA withdrawals are tax-free, making it advantageous for individuals who expect to be in a higher tax bracket in retirement compared to their contribution years. RRSP withdrawals are taxable as ordinary income.