Canadian residents over the age of 18 can now add another $7,000 to their tax-free savings accounts (TFSA) for 2026. The TFSA contribution limit for 2026 is in line with the annual increase over the last two years, bringing the lifetime contribution limit to $109,000.
However, the actual limit can be much higher for active users, as any amount withdrawn is added back as contribution room the following year.
According to a CTV News report, tracking TFSA contributions is complicated for those with multiple accounts. Over-contributions trigger a 1% monthly penalty on excess amounts, which compounds over time.
These penalties have surged as TFSA popularity grew to nearly 20 million holders in 2024, with the CRA assessing $166 million in over-contribution penalties last year, up from $15 million in 2015. One crucial rule to remember is that withdrawn amounts only restore contribution room in the following calendar year, not immediately.
Any income earned from qualified investments in this registered account grows tax-free and can be withdrawn. This contrasts sharply with RRSPs (Registered Retirement Savings Plan), where most withdrawals are taxed at the marginal rate.
Canadian households should aim to use the benefits of the TFSA and RRSP strategically. For instance, you can seek to build TFSA balances before retirement and supplement this income with the Canada Pension Plan.
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Hold quality growth stocks in the TFSA
Given the TFSA’s tax-sheltered status, Canadian investors should consider holding quality growth stocks that also offer attractive dividend yields in this account. One such undervalued TSX stock is Propel Holdings (TSX:PRL).
Valued at a market cap of almost $900 million, Propel stock is down 47% from all-time highs. However, the ongoing pullback allows investors to buy the dip and benefit from an attractive yield of almost 4% in November 2025.
Propel is part of the cyclical consumer lending sector, which suggests it will experience downturns during challenging macro environments.
In Q3 2025, Propel reported record revenue of US$152.1 million, an increase of 30% year over year, while net income rose by 43% to US$15 million. Total originations funded increased 37% to US$205 million, which pushed ending loans and receivables to US$558 million.
Notably, during the earnings call, Propel CEO Clive Kinross emphasized prioritizing credit quality over aggressive expansion. The resumption of student loan collections in Q2 and the ongoing federal government shutdown have further squeezed household budgets for Propel’s target demographic.
To offset an uptick in delinquencies during Q3, Propel and its bank partners implemented proactive underwriting adjustments. It maintained a tighter approval stance and emphasized higher-quality customer segments, including repeat borrowers who historically demonstrate lower default rates.
These measures stabilized credit performance, with provision for loan losses holding steady at 52% of revenue and net charge-offs at 12% of loans outstanding, both within target ranges.
Is this TSX dividend stock undervalued?
Analysts tracking Propel Holdings stock forecast revenue to increase from US$450 million in 2024 to US$958 million in 2027. In this period, adjusted earnings are forecast to expand from US$1.64 per share to US$3.39 per share.
A widening earnings base should translate to consistent dividend hikes, and analysts project the dividend payout to expand from US$0.40 per share in 2024 to US$0.98 per share in 2027.
It means the yield-at-cost will increase significantly from 4% to 6% over the next two years. If the TSX dividend stock is priced at 9.6 times forward earnings, which is in line with its historical average, it should gain 100% over the next 15 months. If we adjust for dividends, cumulative returns should be closer to 108%.
