The Best Way to Structure a $7,000 TFSA Contribution This Year

This TFSA strategy reduces risk while delivering decent returns.

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Piggy bank with word TFSA for tax-free savings accounts.

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With the TSX at a record high at the same time the country is dealing with tariff uncertainty, elevated interest rates, and rising unemployment, investors are wondering how to get good returns inside their self-directed Tax-Free Savings Account (TFSA) without taking on too much risk.

TFSA benefits

Canada created the TFSA in 2009 to give people another tool to save money for future goals. One popular strategy is to use the TFSA as a fund for generating passive income in retirement.

Interest, capital gains, and dividends earned inside the TFSA on qualifying investments are all tax-free. This means the full amount of the earnings can be withdrawn or reinvested without worrying about sharing some with the CRA. Seniors who collect Old Age Security (OAS) get an added benefit. The CRA does not use TFSA earnings when calculating net world income that is used to determine the OAS pension recovery tax, otherwise known as the OAS clawback. This is important for seniors who have high income levels. The number to watch in the 2025 income year is $93,454. Every dollar of income above that amount triggers a $0.15 clawback in the next OAS payment year. For example, a senior with net world income of $113,454 in 2025 would see their total OAS payment for July 2026 to June 2027 cut by $3,000.

Where possible, it makes sense for most people to maximize income-generating investments inside a TFSA before owning them in taxable accounts.

Dividend stocks

Owning dividend stocks comes with capital risk. The share price can fall below the purchase price, and dividends are not 100% safe. However, there are also advantages. Shares can be sold at any time to quickly access the capital if needed. Many companies raise their dividends annually, so the yield on the initial investment rises at a steady pace. Businesses that consistently increase their dividends tend to see their share prices trend higher over the long run.

Enbridge (TSX:ENB) is a good example of a top dividend-growth stock. The company has increased the dividend for 30 consecutive years.

Created with Highcharts 11.4.3Enbridge PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Enbridge grows through a combination of acquisitions and development projects. With a market capitalization near $140 billion, it can pursue large deals. Enbridge also enjoys the balance sheet strength to make major capital investments. The current $28 billion capital program should drive growth in earnings and cash flow to support ongoing dividend increases. Investors who buy ENB stock at the current price can get a dividend yield of 6%.

GICs

Guaranteed Investment Certificates (GICs) provide capital protection as long as they are issued by Canada Deposit Insurance Corporation (CDIC) members and are within the $100,000 limit. Rates offered on non-cashable GICs were as high as 6% at one point in 2023 but have come down due to falling interest rates and lower yields on government bonds. At the time of writing, GIC rates above 3.5% are available, depending on the term and the provider. That’s still above the rate of inflation, so it makes sense to have some GICs in the portfolio.

The bottom line

In the current market conditions, investors can easily build a diversified portfolio of GICs and top dividend-growth stocks to get an average yield of 4% to 5%. The strategy reduces risk while still providing decent returns.

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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.

The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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