How to Use Your TFSA to Earn Passive Income
Canadians are seeking ways to maximize their savings while minimizing their tax obligations. One effective strategy to achieve tax-free passive income is by investing in a Tax-Free Savings Account (TFSA).
TFSA Limit for 2024
The TFSA limit is set to increase from $6,500 in 2023 to $7,000 in 2024. This will raise the maximum cumulative TFSA contribution room per person to $95,000, providing individuals, including retirees and high-income earners, with ample opportunity to maximize their TFSA contributions. Even for investors with limited available funds, the TFSA remains a valuable tool for generating passive income.
Unused TFSA contribution room can be carried forward indefinitely without expiration. Furthermore, any funds withdrawn from a TFSA during the year will open up equivalent new contribution space in the following calendar year.
Ideal TFSA Investments for Passive Income
Investors can currently benefit from attractive returns by considering Guaranteed Investment Certificates (GICs) and high-yield dividend stocks.
The recent surge in interest rates has resulted in higher bond yields, leading to increased rates offered by Canadian financial institutions on GICs. Although rates have slightly pulled back in recent weeks amidst a bond market rally, investors can still find non-cashable GICs paying over 5%, depending on the provider and term.
Simultaneously, the share prices of excellent dividend-growth stocks have significantly declined from their 2022 highs. Many of these stocks now offer highly appealing yields and continue to augment their dividend payouts.
By constructing a well-diversified portfolio of GICs and dividend stocks, investors can easily generate an average yield of 6% or even higher. On a TFSA of $30,000, this would result in $1,800 per year of tax-free passive income that remains solely in your pocket without being shared with the Canada Revenue Agency. In other words, that's an average of $150 per month that you can directly benefit from.
Want more info? Reach out at any time, I’m happy to have a conversation! brenault@liahona.ca or 705-427-2006
