CRA: Get Your TFSA to $1,000,000 Without Getting Taxed

Don’t dream raising $1 million tax-free in your TFSA because you can work on it. Contribute the maximum yearly and make the Enbridge stock your core holding.

| More on:

When you ask people about their financial goals, the typical answer is to have $1,000,000 in the bank. The round figure is nice to hear, although achieving the target is hard, especially if it’s your first million. For regular investors in Canada, a Tax-Free Savings Account (TFSA) could be the vehicle to achieve the lofty goal.

A TFSA is not only an investment account, but also a great way to save for retirement. When you’re building wealth, the easiest mode is to start saving early. The TFSA was introduced in 2009, and every year, the Canada Revenue Agency (CRA) sets a maximum contribution limit.

Anyone who’s been maxing out the limit and investing in dividend stocks could have a substantial balance in 2020. The best part is that the interest, gains or dividends inside the TFSA are tax-free. If your balance is $1,000,000, the CRA won’t tax even a dollar.

Motivation to save

Trying to raise one million in a TFSA is a huge goal. While it might be unreachable, having a specific purpose will motivate you to save. You’ll begin to manage or control your spending so you can free up more cash to set aside and contribute to the TFSA. It’s a must to contribute the maximum amount each year and refrain from making any withdrawals.

The journey to $1 million

Among the eligible investments in a TFSA are cash, bonds, ETFs, GICs, and stocks. You can contribute foreign currency, but your TFSA issuer will convert the fund to Canadian dollars. U.S. stocks are eligible, too, provided it’s traded on a designated stock exchange.

If your chosen American investment pays U.S. dividends, the income is subject to a foreign non-resident withholding tax equivalent (15%). If you want to avoid paying costly tax on your dividend income, don’t invest in U.S. and other international stocks.

To enjoy the full tax-free benefits of your TFSA, stick to local stocks because Canadian dividends and interest are tax-free in a TFSA. You’re better off making your TFSA exclusive to Canadian stocks. Besides, there are outstanding dividend stocks you can buy and hold.

Wealth builders’ choice

I will cut to the chase and name a homegrown blue-chip stock that can help you realize the $1 million dream. Enbridge (TSX:ENB)(NYSE:ENB) is the hands-down of wealth-builders. The top-tier energy stock pays a mind-boggling 8.04% dividend. Any amount you invest will double in nine years.

If you invest $213,000 today, your capital will compound to $1,000,163.76 in 20 years. The example did not consider the TFSA contribution limits, so the one million journey would be longer if you follow them. In a non-registered account, your investment income is subject to tax.

This $83.5 billion energy infrastructure company in North America has a dividend growth streak of 25 years. Management plans to hike dividends by 3% in 2021. Consistent growth is a given because Enbridge’s diversified operations generate fee-based cash flows year in and year out. At $41.23 per share, the stock is trading at a 14% discount.

Seven-figure isn’t impossible

Don’t think that it’s impossible to have a cool one million in your TFSA. The odds are against you for many years to come. However, your financial discipline and determination will bring you to your destination.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »