Most Canadians who utilize the country’s two prominent investment accounts have long-term financial goals or are saving for retirement. The Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP) are excellent vehicles to secure your financial future.
The Canada Revenue Agency (CRA) sets the rules and expects users in either account to comply with them. Accountholders wait for the tax agency’s announcement every year for changes or updates. Three quarters have passed, and if you’ve not utilized or maximized your TFSA or RRSP, the following are important changes for 2021.
The CRA has not increased the TFSA annual contribution limit in the last three years. Thus, it’s $6,000 again this year, like in 2019 and 2020. However, the cumulative contribution room has increased to $75,500 from $69,500. You have the same available contribution if you haven’t contributed to the TFSA since its launching in 2009. Expect the CRA to announce the new 2022 limit in November 2021.
The significant change for the RRSP in 2021 is also the contribution limit. Users can contribute up to 18% of their reported income from the previous year, not exceeding $27,830. However, don’t worry about not contributing the max to your RRSP. You can carry forward the unused contribution indefinitely and add it in future years.
TFSA and RRSP users prefer to hold high-yield dividend stocks for faster tax-free money growth. Pembina Pipeline (TSX:PPL)(NYSE:PBA) is a perennial choice for its generous yield and monthly payouts. The energy stock trades at $41.06 per share and pays an over-the-top 6.14% dividend.
Assuming you have $6,000 and $27,830 worth of shares in your TFSA and RRSP, the corresponding monthly dividend earning is $30.70 and $142.40, respectively. All gains from a TFSA are tax-free, while income from the RRSP is taxable upon withdrawal. Remember, however, that RRSP contributions are deductible from taxable income.
Now is an excellent time to invest in Pembina, because most energy stocks are on a hot streak. This Dividend Aristocrat, for example, enjoys a 43.4% year-to-date gain, and the total gain from last year is 48%. Would-be investors can expect growing dividends, too. The $22.59 billion transportation and midstream company has raised its dividends for 21 consecutive years.
For risk-averse investors
Fortis (TSX:FTS)(NYSE:FTS) is suitable for conservative or risk-averse TFSA and RRSP investors. The utility stock ($55.76 per share) is also an eligible investment in both accounts. While it isn’t the highest dividend payer (3.84%) on the TSX, it holds the second-best record regarding dividend-growth streaks.
This $26.27 billion regulated electric and gas utility company has raised its dividends for 47 straight calendar years. Only Canadian Utilities has a longer record (49 years). Besides dividend consistency, you’re investing in Fortis for its low-risk business model.
There shouldn’t be apprehension about dividend safety, since Fortis derives nearly 99% of revenues from regulated assets. More importantly, management plans to raise dividends annually by 6% through 2025. Fortis’s rate base is continually growing, so the goal is achievable.
The TFSA and RRSP are wealth builders of Canadians with good saving habits. Following the changes yearly will also result in better account management. If you have free cash to invest today, buy Pembina Pipeline or Fortis shares to start growing your nest egg.