Which statement correctly describes the primary purposes of common Canadian tax-advantaged accounts used in WME?

• A. RRSPs provide tax-deferred growth; TFSAs offer tax-free withdrawals; RRIFs convert RRSPs at retirement into an income stream; RESP provides education savings with government grants.
• B. RRSPs provide tax-free growth; TFSAs offer tax-deferred withdrawals; RRIFs convert RRSPs at retirement into an income stream; RESP provides education savings with government grants.
• C. RRSPs provide tax-deferred growth; TFSA withdrawals are taxed as income; RRIFs convert RRSPs into an estate; RESP has government grants with no limits.
• D. TFSA contributions reduce retirement income; RRSP contributions are tax-free; RRIFs provide tax-free income; RESP withdrawals are taxed.

Answer: (A)

Understanding these accounts starts with how they tax or allocate money and what they’re mainly used for.

Registered Retirement Savings Plans (RRSPs) are designed for retirement saving with tax-deferred growth. That means contributions may be deductible now, and investment earnings grow without being taxed until you withdraw, ideally when you’re in a lower tax bracket in retirement.

Tax-Free Savings Accounts (TFSAs) offer tax-free growth and tax-free withdrawals. Contributions are made with after-tax dollars, but any earnings and withdrawals are not taxed, and you can take money out any time without tax consequences.

Registered Retirement Income Funds (RRIFs) come into play when you’re ready to convert your RRSP into a steady retirement income stream. They provide a systematic way to withdraw funds in retirement, and those withdrawals are taxed as ordinary income.

Registered Education Savings Plans (RESPs) are intended to fund education. Government grants (like CESG) and the savings grow with tax advantages, helping with education costs when the funds are used for eligible expenses.

The option that aligns with these primary purposes and tax treatments is the one that states RRSPs offer tax-deferred growth, TFSAs provide tax-free withdrawals, RRIFs convert RRSPs into retirement income, and RESP savings come with government-granted support for education.