The Tax-Free Savings Account (TFSA) can be one of the best ways to create passive income. That’s mainly because of one major benefit: it’s tax-free! Whatever you make in returns or dividend income, that all comes into your account without the tax man coming by.
In fact, the TFSA could create passive income that could create a major amount of income each and every year! So, let’s look at how much investors could create today.
Why the TFSA
There are certainly many ways to create returns and passive income. You could use a Registered Retirement Savings Plan (RRSP). You could use an investment account. But the downfall here is that the returns on these accounts are taxed by the Canada Revenue Agency (CRA).
This is not so in the case of the TFSA. This is where you can create major income but not worry about the taxes as long as you follow the rules. And this can be a large amount of passive income, enough to create funds to increase your TFSA every year!
A stock to consider
Of course, if you’re going to create passive income from your TFSA every year, you’ll need a solid stock to help you out. In this case, you’ll want a company that has a long history of dividends and looks to have a solid future ahead as well.
A great option to consider then is a Canadian bank. In this case, I would consider a company such as Toronto-Dominion Bank (TSX:TD). TD stock has been around for generations, increasing enough to become the second-largest bank in Canada by market cap. It’s expanded into the United States, continues to add on credit card partnerships, and offers expansive loan options.
Because of these and more reasons, TD stock is a solid option. Shares are also a steal right now. TD stock is down 9% in the last year, as of writing, trading at 10.4 times earnings. You can also pick up a 4.69% dividend yield as well. Let’s see how much you could receive in the next year in passive income.
How much you could get
To consider how much passive income you could receive in the next year, there are two points to consider: passive income in terms of returns, and passive income in the form of dividends for your TFSA.
Below, we’ll look at how much an investment of $15,000 in your TFSA could bring in through passive income as well as returns in the next year should it return to 52-week highs.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| TD – today | $80 | 188 | $3.84 | $721.92 | quarterly | $15,000 |
| TD – highs | $94 | 188 | $3.84 | $721.92 | quarterly | $17,672 |
Altogether, investors would have brought in passive income of $721.92 in dividends and $2,672 in returns. That would create total passive income of $3,393.92! That’s why it’s also important to consider both returns and dividends for passive income. And when it’s popped in a TFSA, you can look forward to that income coming in all tax-free!
