Passive Income: How to Make $180 Per Month Tax Free!

One of the goals of every investor is to establish a passive-income stream that can generate oodles of cash per month. Even better if the income you generate can grow tax-free.

Fortunately, it can be done, and here’s how.

Let’s start with the tax-free bit

Establishing a passive income stream is a great goal for every investor. Building that out in a tax-free account can supercharge that eventual income stream over the longer term.

One of the best ways to build that out is to establish a Tax-Free Savings Account (TFSA). The TFSA is a type of retirement account that allows investors the ability to both save and invest a set amount each year without paying taxes on any gains.

There’s an annual limit on how much investors can throw into a TFSA. For 2024, that limit works out to $7,000. What this means is that investors can drop that amount into a TFSA, purchase stock and let it (and received dividends) grow tax-free.

That’s not all. TFSAs come with no withdrawal penalties, as is the case with other retirement accounts.

In other words, if you pick the right stocks to invest in to generate a passive income, they can be an incredible source of tax-free growth for what could be decades.

Now, then, what stocks should prospective investors choose to invest in to generate that juicy tax-free passive income?

Here are two great picks that are hard to ignore.

The ultimate passive-income venture

One of the most popular ways to establish a passive income stream is by owning and renting a property. While this method does offer some advantages, it also carries significant risks and, in recent years, has become more difficult to attain.

As an alternative, would-be landlords should consider a real estate investment trust (REIT) like RioCan Real Estate (TSX: REI.UN). RioCan is one of the largest REITs in Canada with a swath of nearly 190 properties, representing 32.6 million square feet of leasable area.

The company is also committed to expanding its footprint, with a whopping 44.1 million square feet in its development pipeline.

An increasing number of those properties are mixed-use residential sites, and that is where a significant opportunity lies.

The properties, which RioCan dubs RioCan living, consist of residential towers that sit atop several floors of retail. They are located along high-traffic transit corridors in Canada’s major metro markets, with an occupancy rate north of 97%.

Apart from taking the management of the site away from a single tenant, investing in RioCan also spreads out that risk to hundreds of properties. And perhaps best of all, RioCan pays out a juicy monthly distribution, much like a landlord collecting rent.

As of the time of writing, RioCan offers a yield of 5.74%, making it an attractive option for passive-income investors.

How about investing in a basket of companies?

Another great option for passive income investors looking for a monthly income to consider is Exchange Income Corporation (TSX: EIF). Exchange is an acquisition-focused company that owns over a dozen subsidiaries.

Those subsidiaries are broadly classified into one of two baskets: aviation and manufacturing. Somewhat surprisingly, those subsidiaries also share two unique factors that help make Exchange a must-have for passive-income investors.

First, they all generate cash for the company, which allows Exchange to pay out a handsome dividend and invest in growth. As of the time of writing, that monthly dividend works out to a tasty 5.40% yield.

Oh, and let’s not forget that Exchange has provided annual upticks to that dividend 17 times in the past 19 years.

Second, the subsidiaries all provide a necessary service to which there is limited or no competition. By way of example, this includes providing passenger and cargo service to Canada’s remote north regions.

Generate passive income of $180 per month

Both Exchange and RioCan can offer investors a juicy passive-income stream. Here’s how a $20,000 investment in each can provide a monthly income of $180.

Prospective investors who aren’t ready to draw on that income yet can reinvest it, allowing that income to grow until needed.