TFSA Passive Income: Earn $3,471.80 this year

The Tax Free Savings Account (TFSA) is like the secret weapon in passive income strategies in Canada. Since its inception in 2009, it has become a favorite among Canadians for good reason. With a lifetime contribution limit of $95,000 starting in 2024, all the investment gains you make are inside the TFSA. Whether it’s dividends, interest or capital gains, it’s all completely tax-free. This means that every penny you earn stays in your pocket, compounding year after year without the tax man taking a slice. It’s no wonder that by 2022, over 15 million Canadians had opened a TFSA, recognizing its potential to grow wealth efficiently.

But what makes the TFSA particularly appealing for passive income is the flexibility it offers. Unlike the Registered Retirement Savings Plan (RRSP), withdrawals are tax-free and do not affect your taxable income. This makes it ideal to supplement your earnings in retirement or to cover unexpected expenses. Plus, any amount you withdraw is added back to your contribution room the following year, so you never miss out on growth potential. So how can investors benefit?

Using a TFSA

The trick to creating long-term passive income with a TFSA is to choose investments that grow steadily and pay you back over time, like dividend stocks, exchange-traded funds (ETFs), or bonds. Dividend stocks are particularly popular because they regularly pay out a portion of the company’s profits to shareholders, meaning you make money without lifting a finger. Reinvest those dividends back into your TFSA and you create a virtuous cycle of compound growth. Over the years, these small payments can snowball into a significant income stream, all tax-free.

To maximize your TFSA for long-term passive income, think beyond just picking stocks. Diversification is your best friend. By spreading your investments across different sectors and types of assets, you reduce risk while keeping your income streams flowing steadily. Consider mixing in some bond ETFs for stability or international stocks for global exposure. The key is to be patient and let time work its magic. With regular contributions, smart investments and a little discipline, your TFSA can grow into a robust source of income that will support your financial goals for years to come. Whether it’s a comfortable retirement, travel adventure or just a little extra cushion for life’s surprises.

Consider NWC

The North West Company (TSX:NWC) is a good option in this case. It has been a staple in the Canadian retail sector, particularly in servicing remote and rural communities. Looking back, NWC has had a strong, consistent track record of steady growth and reliable dividend payments. The company has skillfully navigated through various economic cycles, maintaining profitability and returning value to shareholders. However, with its focus on regions that are less economically developed, the NWC has faced challenges such as high operating costs and exposure to currency fluctuations. These risks have sometimes put pressure on its margins, but the company’s resilience in dealing with these issues has kept investors safe.

Currently, NWC continues to offer a strong dividend yield of 3.5% and has demonstrated solid financial performance with recent earnings growth and effective cost management. The company’s strategy of expanding its footprint and increasing operational efficiency is paying off, as evidenced by its increasing sales and profitability. Looking ahead, NWC’s ability to adapt to changing consumer needs and its focus on strategic growth make it an attractive option for investors seeking stable long-term returns. While the stock is not without risks, such as potential economic downturns affecting its customer base, the company’s strong market position and commitment to shareholder value make it a compelling investment opportunity.

Bottom line

So let’s say this year you decided to put $7,000 in contribution room in your TFSA for NWC stocks. You then see stocks rise by another 46% that we have seen in the last year alone. Here’s what stocks can potentially offer in passive income at the time of writing.

You have now earned $241.80 per year in dividends and $3,230 in returns! That’s total passive income of $3,471.80 in one year alone. And imagine what that could do in the long run.