Sarah, 45, from Ontario, is reviewing her retirement savings. She currently contributes the maximum allowable to her RRSP and TFSA. She earns $90,000 annually. Her company offers a defined contribution pension plan where she contributes 5% of her salary, and her employer matches it. What is the primary advantage of her TFSA contributions compared to her RRSP contributions for retirement savings?

Question: Sarah, 45, from Ontario, is reviewing her retirement savings. She currently contributes the maximum allowable to her RRSP and TFSA. She earns $90,000 annually. Her company offers a defined contribution pension plan where she contributes 5% of her salary, and her employer matches it. What is the primary advantage of her TFSA contributions compared to her RRSP contributions for retirement savings?

Answer options: ✅ Qualified withdrawals from her TFSA are tax-free in retirement, whereas RRSP withdrawals are taxable.

• TFSA contributions are tax-deductible, reducing her current taxable income.
• Her TFSA contribution room is higher than her RRSP contribution room.
• Investments within a TFSA are guaranteed against market fluctuations.

Correct answer: Qualified withdrawals from her TFSA are tax-free in retirement, whereas RRSP withdrawals are taxable.

Explanation: The primary advantage of a TFSA for retirement savings is that all qualified withdrawals, including investment growth, are completely tax-free, unlike RRSP withdrawals which are fully taxable as income in retirement. This distinction offers significant flexibility.