How a TFSA Can Earn $5,570 Per Year in Tax-Free Passive Income

A Tax-Free Savings Account (TFSA) can be the difference between huge income, and none at all. Add in this dividend stock, and you’ve got a winner.

Are you tired of watching your hard-earned money just sit in your regular savings account, barely earning enough to cover a cup of coffee each year? Then it’s time to put your money to work. One way to do that is to start generating passive income that can make a real difference in your financial life.

To achieve this, utilizing a Tax-Free Savings Account (TFSA) and investing in dividend stocks like Allied Properties REIT (TSX: AP.UN) offers a fantastic dividend yield of 9.97%.

The power of the TFSA

A TFSA is a financial tool that allows Canadians to grow their wealth without having to worry about capital gains tax. You can contribute up to a certain limit each year, most recently with an additional $6,500. The beauty of TFSAs is that the income generated within these accounts is entirely tax-free. Yes, you heard that right. There’s no capital gains tax, no income tax on interest, and no tax on dividends!

Now, let’s get into the juicy part. How can you use a TFSA to create passive income? The secret sauce here is investing. Instead of letting your TFSA funds languish in a low-yield savings account, you can invest in various assets, such as stocks, bonds, or mutual funds that have the potential to generate significant returns over time.

The dividend stock advantage

One of the most popular and time-tested ways to generate passive income through your TFSA is by investing in dividend stocks. These are stocks of companies that pay a portion of their profits to their shareholders on a regular basis, typically quarterly. The dividend income you receive can then be reinvested or withdrawn, depending on your financial goals.

Allied stock is a shining example of a dividend stock that can make your TFSA work wonders. Allied stock boasted an incredible dividend yield of 9.97% at the time of writing. That means for every $1,000 you invest, you could potentially earn nearly $100 per year in dividends alone. This isn’t just a once-in-a-blue-moon opportunity either. It’s a reliable way to generate consistent passive income.

Why Allied stock is a great long-term option

Allied stock focuses on owning and managing urban office spaces and creative workspace environments. With the shift toward remote work and the growing demand for flexible office solutions, the dividend stock is well-positioned for continued growth.

With a history of consistent and growing dividends, Allied stock has proven its commitment to rewarding shareholders. Furthermore, commercial real estate, particularly in prime urban locations, tends to be resilient even in economic downturns. Allied stock’s focus on this niche ensures stability. The dividend stock has a history of increasing its dividends over time. This means your passive income can grow along with your investment.

Within a TFSA, you won’t pay taxes on the dividends you receive from Allied stock, allowing you to maximize your income. Investing in a real estate investment trust like this dividend stock provides diversification in your TFSA portfolio, reducing risk. Now, if you were to take that $6,500 and invest it today, seeing Allied stock return to 52-week highs, here’s how much you could earn.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTAL
AP.UN – now$17.65368$1.80$662.40monthly$6,500
AP.UN – high$31368$1.80$662.40monthly$11,408

Bottom line

As you can see, this dividend stock could produce returns of $4,908 plus $662.40 in dividends. That’s a total of $5,570.40 in passive income! And it’s all tax-free in a TFSA.

The TFSA is a versatile and powerful tool for building passive income. That’s especially true when you use it to invest in dividend stocks like Allied stock. The 9.97% dividend yield, combined with the tax-free status of a TFSA, can be a game-changer for your financial future. Don’t let your money sit idle; put it to work and watch your passive income grow. Yet remember, investing carries risks, so it’s essential to approach it with a well-thought-out strategy and a long-term perspective.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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