LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client has an RRSP and no TFSA, and is in a low tax bracket expected to rise. The assessment suggests:
- AMore RRSP contributions, since the deduction should be claimed while the client has earned income
- BAn annuity, since a client in a low bracket benefits most from guaranteed income
- CNo saving until the bracket rises, since contributions made now will be taxed at the higher rate later
- TFSA contributions now, saving RRSP room for higher-income years
Correct answer: D) TFSA contributions now, saving RRSP room for higher-income years
The RRSP/TFSA choice turns on current versus future tax rates. Low now, high later favours TFSA first.
Why the other options are wrong
- AThe deduction is worth less in a low bracket; room is better saved.
- BAn annuity is an income product, not an accumulation choice.
- CSaving is appropriate; the question is which vehicle.
Exam tip
Low bracket now, higher later → TFSA first; reverse → RRSP first.
Common mistake
Defaulting to RRSP regardless of bracket.
What this tests
CISRO competency component 1.2 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.