The federal government introduced the Tax-Free Savings Account (TFSA) in 2009, 52 years after creating the Registered Retirement Savings Plan (RRSP) in 1957. However, even if the TFSA came belatedly, it has overtaken the older RRSP in popularity.
The Canada Revenue Agency (CRA) sets the contribution limits for both, but not in the same way. There is no income limit for opening a TFSA, and the CRA indexes the annual contribution limit to inflation. For the RRSP, the limit depends on earned income from the prior year.
Many TFSA users became millionaires despite the smaller yearly contribution limits compared to the RRSP. If published reports are accurate, what are the secrets of TFSA millionaires? I am sure the balances grew to seven figures through a methodical approach, not luck.
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Maximize your contribution limit
Because the salient feature of the TFSA is tax-free money growth, it follows that maxing out the yearly limits is the key to becoming a millionaire. TFSA millionaires save and invest instead of engaging in useless spending. The enjoyment will come later on when you have built serious wealth.
Stay invested
TFSA withdrawals are tax-free but avoid withdrawing money unless urgent or necessary. Future TFSA millionaires have long-term investment horizons. Furthermore, dividend stocks and reinvesting of dividends will harness the power of compounding and supercharge your TFSA.
A Dividend Aristocrat like TC Energy (TSX:TRP) is ideal for wealth-builders because of its Dividend Aristocrat status. This large-cap energy stock ($70 billion market capitalization) has raised dividends for 24 consecutive years. Unused TFSA contribution rooms accumulate, and the cumulative amount in 2025 for anyone eligible since 2009 is now $109,000.
TC Energy trades at $66.88 per share and pays a hefty 4.87% dividend. Let’s assume your available contribution room is $109,000 for illustration purposes. It can purchase around 1,630 shares and generate $1,327 in quarterly passive income. However, if you reinvest the dividends four times a year for 20 years, your investment will compound to $286,955.40 in 20 years.
Balance income and growth
Growth investing is also an option for TFSA investors. Some TSX stocks are non-dividend payers, yet their returns are astronomical due to price appreciation. Note that dividend income, interest, and capital gains earned in a TFSA are tax-free. Celestica (TSX:CLS) in the technology sector is an example.
The $21 billion technology company is the counterpart of America’s artificial intelligence (AI) king, NVIDIA. At $184.74 per share, the trailing one-year price return is +255.13%, while the three-year return is +1,109.03%. Had you invested $6,000 three years ago, your money would be $72,684.59 today.
Celestica’s growth trajectory is unstoppable, given the strong performance of its connectivity and cloud solutions (CCS) and advanced technology solutions (ATS) in high-demand sectors like healthcare, defence, and aerospace.
Avoid CRA traps
TFSA millionaires avoid CRA traps and do not raise alarm bells with the tax agency. Always stay within your limits because overcontribution results in a 1% penalty tax per month on the excess contribution. Also, the cardinal rule does not allow carrying a business in a TFSA (day or frequent trading). Otherwise, the CRA will treat income from this forbidden activity as taxable business income.
Do you want to be a TFSA millionaire? The supposed secrets are open and known to people. Follow them.
