Want To Retire Wealthy? Don’t Make These 2 Massive TFSA Mistakes

A TFSA is the way to retiring wealthy. However, two massive mistakes can block your objective. For wealth-building in your TFSA, the Emera stock is a standout choice.

| More on:
Two hands holding champagne glasses toasting each other with Paris in the background

Image source: Getty Images.

The Tax-Free Savings Account (TFSA) makes it possible for Canadians to build a fortune and hit their long-term financial goals. Also, nothing beats the tremendous tax advantages of a TFSA. You can grow your money tax-free, withdraw anytime without fear of a tax penalty, and keep earning for life.

Set aside a portion of your income to contribute every year to create more income. If you dream of retiring wealthy, use your TFSA properly. Some users commit two massive mistakes when maintaining this unique investment vehicle. Don’t make the same mistakes so you can fulfill your dream.

1. Holding cash

If you haven’t opened a TFSA and opt not to open at all because you missed out on contribution years, it’s an error in judgement. However, the bigger mistake is if your only purpose to open a TFSA is to store or hold cash. It’s not an ordinary savings account but a unique investment vehicle.

The TFSA is the place where money begets money. There’s no room for idle cash.  To realize the full benefits of your TFSA, you need income-producing assets. Don’t worry about the Canada Revenue Agency (CRA) infringing on the account. All interest, gains or earnings are non-taxable by the CRA.

2. Over-contribution

The CRA sets the contribution limit to the TFSA yearly, so you must follow the rules. If the 2020 TFSA contribution limit is $6,000, don’t go beyond or over-contribute.  The excess amount will incur a 1% per month penalty. Remember, a TFSA should be tax-free all the way unless mismanaged by the user.

This month, the CRA should be announcing the new annual contribution room for 2021. Had you opened a TFSA in 2020, you’ll gain more contribution room on January 1, 2020. Remember, too, that you get back the room from withdrawals you made in the prior year. For Canadians who have never contributed to a TFSA but are eligible since 2009, the cumulative contribution room in 2020 is now $69,500.

Go with the flow

Dividend stocks are eligible investments in a TFSA, but not all dividend payers are safe holdings. The stock market is unpredictable, so it’s your lookout to pick a dependable wealth-builder. Emera (TSX:EMA) is a worthy consideration because it’s a diversified utility company.

The $14 billion company derives steady revenue by generating and distributing electricity to 2.5 million utility customers. It also engages in gas transmission and utility energy services. Emera has seven regulated companies and two unregulated investments in six countries.

For TFSA users, the utility stock is outperforming in 2020, with its 6.16% year-to-date gain.Emera pays a 4.56% dividend, which should be good to produce $6,840 in tax-free income if your investment is $150,000. In 20 years, your capital would be worth $365,933.99.

With the evolving energy landscape and rising demand for renewable energy, Emera is going with the flow. The company is exploring emerging technologies and solutions to address changing customer needs. Expect Emera to play a critical role in shaping the future of the industry.

Avenue to wealth

No investment account can match the tax-free money growth feature and flexibility of the TFSA. Manage your TFSA correctly to unlock the door to riches. Canadians should be thankful they have an avenue to retire wealthy.

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.

More on Dividend Stocks

Man making notes on graphs and charts
Dividend Stocks

Recession Stocks for Beginners

Recession-proof opportunities like Shaw Communications (TSX:SJR.B)(NYSE:SJR) should be on your watch list.

Read more »

protect, safe, trust
Dividend Stocks

1 Dividend Stock Yielding 8.98% Offering Stable Income

This dividend stock on the TSX today offers investors a chance at over $4,000 in returns over the next year…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: 2 Dividend Stocks Yielding About 4-5% to Buy Now

These discounted dividend stocks should provide market-beating passive income and total returns with below-average risk in the long run.

Read more »

Woman has an idea
Dividend Stocks

2 Ways to Fight the Record-High Inflation

Investing allows you to grow your savings faster than inflation can deplete them, and different types of investments offer various…

Read more »

Couple relaxing on a beach in front of a sunset
Dividend Stocks

3 Dividend Stocks I Plan on Buying This Summer

Are you on the hunt for new dividend stocks to add to your portfolio? Here are three stocks I plan…

Read more »

Dividend Stocks

Real Estate Prices Finally Soften: Buy These 2 REITs?

Two recovering REITs should attract investors if real estate prices continue to soften and the central bank raises interest rate…

Read more »

data analyze research
Dividend Stocks

The 3 Most Traded Stocks on the TSX

These three most traded TSX stocks might give you an idea of where big investors’ money has been flowing lately.

Read more »

Payday ringed on a calendar
Dividend Stocks

Earn a Monthly Income of $260 From These 3 REITs

REITs are ideal for creating a monthly passive-income stream, because they have the right distribution frequency and usually offer healthy…

Read more »