What are the advantages of using tax-free savings accounts (TFSAs) for mutual fund investing?

Using tax-free savings accounts (TFSAs) for mutual fund investing offers significant advantages, particularly regarding the treatment of investment growth and withdrawals. The correct choice highlights that investment growth within a TFSA is completely tax-free, meaning that any earnings—be it from interest, dividends, or capital gains—do not incur taxes as long as the funds remain in the account.

Additionally, all withdrawals from a TFSA are tax-exempt. This means that when investors take money out of their TFSAs, whether it's their original contributions or the investment earnings, they do not have to pay taxes on these amounts. This provision makes TFSAs an excellent vehicle for long-term investment, allowing individuals to grow their investments without the concern of future taxation on both growth and withdrawals.

In contrast, the other options reflect inaccuracies concerning how TFSAs function. For example, penalties for withdrawals are incorrect since funds can be withdrawn without penalties or taxes. Other options suggesting that contributions are the only tax-deductible elements or that growth is subject to capital gains tax do not accurately represent the TFSA's design and tax benefits. Overall, the unique structure and tax advantages of TFSAs make them a powerful tool for those looking to invest in mutual funds.