This TFSA Update Can Make Your Richer … if You Take Advantage

Take advantage of new TFSA changes to get wealthier. Whether you are new to investing or a veteran, the TFSA can help you accumulate wealth quicker.

With the new year upon us, Canadians can add an additional $7,000 to their Tax-Free Savings Account (TFSA). If you turn 18 years of age in 2025, you can contribute a total of $7,000 to your TFSA.

While it is not a lot of cash to invest, any amount that you can invest tax-free is an amazing gift. For example, if you invested $7,000 in your TFSA at the start of 2025 and earned a compounded 9% annual rate of return (an average return similar to the S&P 500), that investment would be worth $16,571 in 10 years!

Blocks conceptualizing Canada's Tax Free Savings Account

Source: Getty Images

Tax can quickly chip away at your rate of return

If that was held in a non-registered investment account, you could be on the hook for as much as $1,200-$1,700 in capital gains tax (depending on your tax bracket). That adds up to almost a point or two off your compounded rate of return (so 7-8% rather than 9%).

The point is that you should take every opportunity you can to invest tax-free with your TFSA. Canadian residents who were born in 1991 or earlier can now invest an accumulated total of $102,000!

You can become a TFSA millionaire with discipline and smart investing

Just imagine the compounding that can occur with a sum that size. It is entirely possible that you could one day become a TFSA millionaire if you contribute annually, invest wisely, and resist the temptation to withdraw your TFSA funds.

In fact, if you smartly invest $102,000 of TFSA funds at a tax-free 9% annual return and regularly contribute (for now, $7,000 per year), it will take you just over 20 years to become a millionaire. If you are in your mid-30s today, that is a very achievable goal for retirement.

Whether you are investing $7,000 for the first time in a TFSA or you are looking to invest the entire contribution limit ($102,000), you will need good stocks to hold. If you are looking for some ideas, two stocks to consider are Constellation Software (TSX: CSU) and TerraVest Industries (TSX: TVK).

One of Canada’s great software compounders

Certainly, Constellation, with its magnificent return track record, is an easy one to consider adding to your TFSA. However, lately market commentators have once again started to worry about its growth potential. Its stock has pulled back by about 10%.

I have seen this happen several times to Constellation. Every time, the company operationally outperforms, and the stock does really well later.

Over the past five years, its stock has risen by a 25% compounded annual growth rate (nearly three times the above-discussed rate of return). Given its large $90 billion size, similar type returns may be difficult.

However, even with half those returns, investors could still do exceptionally well. Constellation has a top management team, an excellent acquisition and operational platform, and a great balance sheet. It’s a great high-quality stock to hold for years ahead in a TFSA.

A great stock to hold long-term in a TFSA

TerraVest is a similar business. Like Constellation, it is very acquisitive. It buys cheap industrial companies, maximizes operational performance to generate strong free cash flows, and reinvests into more businesses.

So far, it has had a winning formula. Its stock has delivered a 56% compounded annual return over the past five years (up 848%) and a 38% compounded annual growth rate over the past 10 years (up 2,574%).

If you want a great compounding stock in the early innings of its growth story, TerraVest is an intriguing stock for a TFSA.

Fool contributor Robin Brown has positions in Constellation Software and TerraVest Industries. The Motley Fool recommends Constellation Software and TerraVest Industries. The Motley Fool has a disclosure policy.

More on Retirement

warehouse worker takes inventory in storage room
Dividend Stocks

This REIT Pays You Every Month: Here’s What $25,000 Buys in Income

Granite REIT turns a $25,000 budget into about $88 a month at its current distribution rate, before tax.

Read more »

woman considering the future
Dividend Stocks

The $1.7 Million Retirement Number Is an Average: Here’s How to Find Yours

Canada’s $1.7-million retirement expectation says little about your own target until spending, pensions, and withdrawal taxes are included.

Read more »

horses compete to win race
Dividend Stocks

Telecoms Were Monday’s Worst TSX Sector: This One Yields 4.5%

Rogers offers a meaningful dividend yield, with debt reduction providing the clearest test of the investment case.

Read more »

man in business suit pulls a piece out of wobbly wooden tower
Stocks for Beginners

The U.S. Just Cut Lumber Duties: This Producer Got the Lowest Rate

West Fraser's new announced duty rate offers relief, although separate tariffs and weak housing demand remain substantial hurdles.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

An Ideal TFSA Stock for Retirees, Paying 5.2% Each Month

Here's why this popular Canadian real estate stock is one of the best picks for retirees inside their TFSAs.

Read more »

RRSP (Registered Retirement Savings Plan) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

The RRSP Deadline is in March: Here’s Why November Starters Come Out Ahead

An earlier RRSP contribution plan spreads the cash commitment and leaves more time to make sensible investment choices.

Read more »

how to save money
Energy Stocks

Gasoline Is Up 27.8% in a Year: This Oilsands Giant Is Cashing In

Suncor's integrated operations generate substantial cash, although a strong oil quarter shouldn't become a permanent assumption.

Read more »

The sun sets behind a power source
Dividend Stocks

Taking CPP at 60 Shrinks Your Cheque 36%: This Dividend Stock Helps Bridge the Gap

Fortis can supplement retirement income, but dividend cash and a permanently reduced CPP pension aren't interchangeable.

Read more »