The Tax-Free Savings Account (TFSA) was introduced in 2009 to encourage Canadians to improve their savings practices. However, the tax-sheltered status of the account makes it far more than a mere savings account. If you use it wisely, it can be the best investment vehicle you can get as a Canadian to enjoy substantial financial freedom.
After the January 2026 update, the cumulative contribution room of the TFSA has reached $109,000. Considering how many incentives Canadians can get, the actual usage rate of the account is surprisingly low, especially among Canadians around a decade from retirement.
Based on data published recently, the national average TFSA contributions for Canadians aged between 50 and 54 are $26,479 and $30,200. It means potentially around $80,000 of unused contribution room.
With most of the contribution room unused, Canadians nearing 50 might see a missed opportunity. I think it is a massive opportunity for people in this age group. A well-played TFSA strategy for 50-year-olds can still help you make the most of the account.
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Put your money to work
The TFSA isn’t like a spot under your mattress where you can set aside cash and forget about it. By storing cash, you might be missing out on a lot of tax-sheltered growth for your wealth. Instead of letting cash sit idle in your account, invest that money to buy and hold income-generating assets.
Besides cash, you can use the TFSA to hold various other types of assets, including Guaranteed Investment Certificates, exchange-traded funds, real estate investment trusts, and my personal favourite, stocks. Investing in dividend stocks in a TFSA can be one of the best ways to leverage the tax-sheltered status of the account.
Invest in stocks
If you’re interested in investing in dividend stocks, the TSX has plenty of them available for you to invest in. Ideally, you should look for dividend stocks that have the ability to provide uninterrupted dividend distributions for decades. Blue-chip TSX stocks from the banking sector can be some of the best picks, to this end.
Bank of Nova Scotia (TSX:BNS) is one such TSX banking stock that you can consider for your self-directed investment portfolio. Boasting a $130.75 billion market cap, Scotiabank stock is one of Canada’s Big Six banks. As a stock market investor with a long-term view, you cannot go wrong with any of the Big Six.
As of this writing, Scotiabank stock trades for $106.09 per share. A hypothetical $80,000 investment in the stock would mean getting around 754 shares. Scotiabank stock pays its investors $1.10 per quarter for each share, translating to a 4.15% annualized dividend yield. An $80,000 investment in the stock could mean $829.40 per quarter, or over $3,300 per year in dividend income alone.
Assuming that you keep reinvesting dividends, you can watch your account balance grow significantly within 15 years and get into a much better financial position than when you started.
Foolish takeaway
Scotiabank stock has been paying dividends to its investors without fail for almost two centuries. The well-capitalized bank is well-positioned to continue paying its investors their dividends. A stock like this, held in your self-directed TFSA portfolio, can provide significant returns in the long run that are safe from taxes.
When investing in a TFSA, make sure you diversify your capital across several stocks to mitigate the risk that comes with putting all your eggs in one basket. The example I discussed is only for illustrative purposes to give you a general idea of the concept.
