Retirement Boost: How Couples Can Use the TFSA to Earn $780 Yearly in Tax-Free Income

An essential point to remember about the Tax-Free Savings Account (TFSA) is that spouses or common-law partners can’t jointly own one.

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An essential item to remember about the Tax-Free Savings Account (TFSA) is that spouses or common-law partners can’t jointly own it. The Canada Revenue Agency (CRA) is clear – a TFSA can only be set up and held individually. While the rule has no exceptions, it’s an advantage, not a deal buster to couples.

If a couple opens a TFSA individually, there’s more contribution room for tax-free money growth. The 2024 annual contribution limit per accountholder is $7,000, so that’s $14,000 for two. If one can’t fund the TFSA, the other can give money without tax consequences.

Yearly tax-free income

Couples with long-term financial goals like retirement can use the individual TFSAs to boost their savings and build a substantial nest egg. High-yield dividend stocks Choice Properties (TSX:CHP.UN) and Dexterra Group (TSX:DXT) form a good combination. One partner can own the real estate investment trust (REIT), while the other holds the industrial stock.

Given the average dividend yield of 5.57%, a $14,000 investment ($7,000 each) will produce a yearly tax-free income of $779.80 in a TFSA. For faster compounding of the balance, the couple can reinvest the dividends. The income could grow yearly and over time.

A bonus from the combination is the payout frequency. Since Choice Properties and Dexterra pay monthly and quarterly dividends, there’s tax-free income every month every quarter. One partner can reinvest dividends 12 times a year, and the other 4. The funds combined will multiply if the couple can maximize or fully fund their annual TFSA limits.

Winning retail portfolio

Choice Properties is one of Canada’s largest urban land owners and a mid-cap real estate stock. This $4.6 billion REIT owns and operates three asset classes: retail, industrial, and mixed-use and residential properties. At $14.12 per share, the dividend yield is 5.31%.   

The strategic relationship with giant retailer Loblaw is a competitive advantage. Choice Properties’ anchor tenant represents 57% of the REIT’s tenancy. About 81% of the retail portfolio is necessity-based or grocery-anchored. At the end of Q3 2023, the average occupancy rate is 97.7%, while the weighted average lease term is 5.6 years.

Support services champion

Dexterra rewarded investors with a market-beating 13.1% return in 2023 on top of the juicy 5.83% dividend. At $6 per share, the year-to-date gain is 4.17%. The $387.8 million company operates in the Special Business Services industry. It provides support services, including facilities management and operations, energy and food services, workforce accommodations, modular solutions and forestry.

Three segments, Integrated Facilities Management (IFM), Modular Solutions & Workforce Accommodations, and Forestry and Energy Services (WAFES), contribute and deliver solid revenues and profits. In the first nine months of 2023, net earnings soared 311% year over year to $27 million on revenue of $846.7 million.

Dexterra is outperforming the TSX due to its impressive revenue growth and profitability. Management is confident about the company’s bright long-term prospects because of the growing infrastructure support services and sales momentum of IFM and WAFES, both growth engines.

The power of two

The TFSA is more powerful if two users with one financial goal work together. With the right investment combination, regular contributions, and dividend reinvesting, couples can build a fortune over time and enjoy a comfortable retirement.    

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. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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