Canadian retirees and other income investors are searching for ways to get better returns on their savings without taking on too much risk or getting hit with more taxes. Pensioners, in particular, want to avoid the Old Age Security (OAS) clawback, or at least reduce it, if possible.
Holding investments inside a Tax-Free Savings Account (TFSA) is one way to achieve this goal.
TFSA limit in 2024
The TFSA limit in 2024 will be at least $6,500 and could be $7,000, depending on the inflation rate the government uses for this year when determining the contribution amount. The TFSA limit is indexed to inflation and increases by increments of $500.
At the very least, the cumulative maximum TFSA room will be $94,500 per person in 2024. This gives retirees a good chunk of investing space to earn passive income without worrying about paying more tax or risking a clawback on their OAS pensions.
TFSA earnings are all tax-free and can go straight into your pocket. Unused TFSA contribution space is carried forward. In addition, any amount removed from the TFSA during the year opens up equivalent new contribution space in the following calendar year.
Best TFSA investments for passive income
Guaranteed Investment Certificates (GICs) from Canada Deposit Insurance Corporation (CDIC) members are risk-free as long as they are within the $100,000 limit. Investors can now get GIC rates above 5.5% for terms of one to three years from some providers.
A number of high-quality dividend stocks currently offer yields above 7% as a result of the pullback in stock prices that occurred in recent months. Ongoing volatility should be expected, but some great dividend-growth stocks are starting to look oversold.
Enbridge
Enbridge (TSX:ENB) is a good example of a top Canadian dividend stock that now offers a great yield. The share price is close to $44 at the time of writing compared to $56 near the beginning of the year.
Enbridge has a solid capital program in place to boost the asset portfolio and is making new acquisitions to drive revenue growth. This should support the dividend. Enbridge increased the payout in each of the past 28 years. Investors who buy ENB stock at the current share price can get a dividend yield of 8%.
The bottom line on top investments for TFSA passive income
Retirees have an opportunity to get good returns from both GICs and quality dividend-growth stocks today. The right mix depends on a person’s risk tolerance, the need to access the invested funds, and the yield required to meet income goals.
It is quite easy in the current market to build a diversified TFSA portfolio of GICs and high-yield dividend stocks to get an average return of at least 6%. On a TFSA of just $50,000, this would generate $3,000 per year in tax-free income that won’t put OAS at risk of a clawback.
