4 Steps to Turn Your $10,000 TFSA Into $100,000

Growing TFSA balances 10-fold is achievable if users follow four methodical steps.

| More on:

The usual advice of financial experts if you’re building a nest egg for retirement is to start saving and investing early. A longer time horizon increases the chances of achieving long-term financial goals. One of the best tools available to save for the future in Canada is the Tax-Free Savings Account (TFSA).

Your TFSA is a one-of-a-kind account where income opportunities are endless. Unlike the Registered Retirement Savings Plan (RRSP), you can maintain a TFSA beyond age 71 or as long as you wish. However, its power as wealth builder depends entirely on how the accountholder utilizes it.

TFSA users can grow balances faster through the power of compounding. Also, turning a $10,000 TFSA into $100,000 is doable, but it entails methodical steps to get there.

1. Diligent, consistent savings

Apart from a longer time frame, TFSA users must sock away money diligently, regularly, and consistently. Revisit your budget and see where you can free up more cash. Cash is king, but a TFSA isn’t the best place to store idle money. You need income-producing assets like bonds, mutual funds, GICs, ETFs, and dividend stocks in building wealth.   

2. Work around the limit

The Canada Revenue Agency (CRA) sets annual limits, and, therefore, you must comply. Users who overcontribute pay 1% of the excess as penalty tax. For 2022, the TFSA limit is $6,000, so your beginning investment should be the same. Wait for the CRA to announce the new limit for next year.

You can add $4,000 starting January 1, 2023, to complete the $10,000 TFSA. If you have more funds, maximize the limit if it’s over $4,000. Strictly speaking, your return on investment (annual) and time frame on $10,000 in capital must be 8% and 30 years, respectively, to hit $100,000.

3. Keep reinvesting

Many TFSA investors prefer dividend stocks because of higher returns. Most companies pay dividends every quarter, although there a few that pay monthly.

Dividend frequency is important, because it tells you how often you can reinvest the dividends. Commit to zero withdrawals to preserve the capital and grow tax-free earnings. While you won’t pay taxes on TFSA withdrawals, you can’t return the amount the same year you withdrew it.

4. Understand the risks

Blue-chip stocks are ideal anchors in a TFSA because of their strong financial positions and balance sheets. The dividend track records are also impeccable. Unfortunately, the dividend yields might not be to your liking or are less than 8%.

Diversified Royalty (TSX:DIV) is an interesting option today for its over-the-top 8.33% dividend. Moreover, the share price is only $2.63 (-2.48% year to date). The $326.23 million multi-royalty corporation owns the trademarks to six ongoing business concerns.

Mr. Lube is the largest company in the royalty pool, which also includes AIR MILES, Sutton, Oxford Learning Centre, Nurse Next Door, and Mr. Mikes. Despite inflationary pressures, Diversified Royalty reported a 28.1% increase in net income in Q1 2022 versus Q1 2021. Still, you must understand the risks in this low-priced, high-yield stock before investing.

Challenging environment

Rising inflation will prevent Canadians from saving more. Fortunately, unused contribution TFSA room carries over to the next year. Users have the opportunity to catch up and be on track with their financial goals.  

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 has no position in any of the stocks mentioned.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »