TFSA Investors Turn $69,500 Into $1 Million With $0 CRA Taxes

A TFSA nest egg is better than others because, at the end of the day, it’s all yours. Without any tax implications, a well-grown TFSA can be a powerful retirement ally.

| More on:
Canadian Dollars

Image source: Getty Images

It’s heartening to see that the government doesn’t leave you stranded (financially speaking) when you retire. You get your retirement benefits in the form of CPP and OAS. If we combine the maximum OAS payout of $613 and the average CPP payment of $672, the total comes out of $1,285. This is far from what a retiree needs for a comfortable life.

This is why Canadians are encouraged to start investing as soon as they can, in order to grow their wealth. So in their retirement years, they have alternate income sources to depend upon, in addition to government-provided benefits.

One of the best ways to cultivate alternate income resources is to invest using a Tax-Free Savings Account (TFSA). This not only ensures a sizeable nest egg, but it can also help you keep your tax bill lighter in your retirement years.

So how much can you really grow your TFSA? Many people believe that about $1 million is a cozy enough sum for retirement. You can break that $1 million into over $2,777 a month for about 30 years.

Let’s see how we can potentially turn a fully stocked TFSA into $1 million using two growth stocks.

A cargo prospect

While airlines are going down, Cargojet (TSX:CJT) has been going up and up for over a decade. It’s no wonder that the price-to-earnings ratio is through the roof (over 73 times). It’s expected to increase its EPS by 42% in 2021.

The return on equity isn’t too lucrative at 5.3%. But what is lucrative is its raw growth. The company returned 483% to its investors in the past five years.

The company’s swift recovery from the crash and explosive growth during the pandemic are partly due to its cargo based business model. The same day and fast deliveries from online retail are quickly becoming the norm, and Cargojet is an important piece of that machinery in Canada.

As for the “million-dollar” aspect of this investment, even if we consider the 10-uear CAGR of the company, which is lower than its three- and five-year CAGR, the company is a millionaire maker by itself. With a 37.57% CAGR and half of your TFSA (nearly half, at $34,500), the company can earn you over $1 million in just 11 years.

But to be conservative, let’s take half this growth rate for our assumption. At an 18.7% yearly growth rate, Cargojet can convert your $34,500 initial investment into $535,000 in 16 years.

A software company

Enghouse Systems (TSX:ENGH) is one of the oldest Dividend Aristocrats in the software sector, with over 12 years of consecutive payout increases under its belt. The company touts a decent return on equity of 18.3%, and with a price-to-earnings of 38.2 times, it’s not as overvalued as Cargojet. It’s estimated that the company will grow its EPS by 23.5% in the next year.

As an Aristocrat, it doesn’t offer a very juicy yield at just under 1% at the time of writing this. But it has steadily grown its payouts over five years. It’s also a modest growth stock with a five-year CAGR of 18.81%. At this growth rate, Enghouse can boost the rest of your TFSA funds ($35,000) to $551,000 in 16 years.

Foolish takeaway

Together, the two stocks have the potential to turn your $69,500 TFSA investments into $1,086,000 in 16 years, if they keep growing at a pace of over 18.7% a year. But if this growth rate is too risky for your taste, or you want to diversify your TFSA investments more extensively, there is another way.

With $69,500 and 30 years, you can grow your TFSA to $1 million if your portfolio is growing at just 9.3% a year.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CARGOJET INC. The Motley Fool recommends Enghouse Systems Ltd.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »