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2 Different Ways to Generate $1,000/Month of Passive Income in Your TFSA

Do you want to fill your TFSA with quality stocks that generate income for life?

If so, you’ve got plenty of options available. Not only can you generate regular income by buying growth stocks and selling after they go up, you can also get quarterly income in your TFSA by collecting dividends.

The beauty of a TFSA is that all of your gains are tax-free. Whether you profit by selling or by collecting dividends, the money is yours to keep. Even when you withdraw money from a TFSA to a chequing account, it is not taxed. So, a TFSA is a great place to hold stocks you rely on for income.

TFSA income can potentially grow to a very high level. Although you can only put $6,000 into a TFSA this year, that’s $60,000 if you max out every year for a decade, which can grow to $300,000 or more. At that level, you’d generate $12,000 a year or $1,000 a month in dividends at a 4% yield. In just a minute, I’ll show you exactly how to do that. But first, let’s take a look at an approach that could get you to a $1,000 a month even faster.

The growth approach

Growth stocks have the potential to generate the greatest income of any type of security. Although people usually associate dividend stocks with “income,” proceeds from selling stocks are a form of income as well. Remember: you don’t need to cash out your entire position to make money with growth stocks. All you need to do is sell a portion of your stake whenever you make a big gain.

A great option here would be Shopify (TSX:SHOP)(NYSE:SHOP). Shopify is one of the fastest-growing TSX stocks at the moment, up over 700% since its IPO in 2015. At a growth rate like that, you can easily sell 20% of your shares and still be way up. And with Shopify’s revenue growing by 54% year over year, there’s no reason it can’t keep going up.

The dividend-reinvestment approach

A second approach that could generate upwards of $1,000 a month in your TFSA is the dividend-reinvestment approach. As previously mentioned, you need about $300,000 to get $1,000 per month at a 4% yield. Even if you’re maxing out your TFSA, it will take a while to get there. However, you can grow your stake a little faster by reinvesting your dividends. This is simply a matter of taking dividends you’ve been paid and putting them back into the stock that paid them. This gradually increases your position whether or not you add more money to your TFSA from outside.

One solid stock for doing this with is TransAlta Renewables (TSX:RNW). TransAlta is an energy company that focuses on renewable sources like hydro, wind, and solar. As a renewables company, it’s a rare energy play that’s not vulnerable to the price of oil. And, with a 6.8%  yield at the moment, this stock lets you earn $1,000 a month (paid quarterly) with much less than the aforementioned $300,000.

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Fool contributor Andrew Button has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify is a recommendation of Stock Advisor Canada.

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