TFSA Investors: Turn That $7,000 Contribution Into $64.51 Each Month

A $7,000 TFSA contribution can be used to buy a monthly-paying ETF, but the juicy yield comes with trade-offs.

Key Points
  • Inside a TFSA, distributions and gains grow tax-free, and withdrawals won’t reduce OAS or GIS benefits.
  • HMAX pays monthly by writing covered calls on major Canadian financial stocks, which can cap upside.
  • At about $18.20 per unit, $7,000 buys roughly 384 units and about $64 monthly income today.

Most annual limits arrive with all the excitement of a parking sign. The 2026 Tax-Free Savings Account (TFSA) limit is different. Invest it for income, and one contribution can begin producing 12 smaller deposits while the original investment remains in the market doing its thing.

ETF is short for exchange traded fund, a popular investment choice for Canadians

Source: Getty Images

Push it to the limit

The Canada Revenue Agency set the 2026 TFSA dollar limit at $7,000, although that doesn’t mean everyone can automatically contribute exactly that amount. Unused room carries forward, while previous contributions reduce the room available. Withdrawals generally return as new contribution room the following calendar year, so checking personal records before contributing remains rather important unless donating money to CRA penalties sounds fun.

Once money is invested inside a TFSA, interest, dividends, distributions, and capital gains can grow tax-free. Withdrawals are also tax-free and don’t affect federal income-tested benefits such as Old Age Security (OAS) or the Guaranteed Income Supplement (GIS). That makes the account a lovely home for a future TFSA paycheque.

That said, a monthly payment isn’t automatically safer than a quarterly one. The frequency simply determines when the cash arrives. Investors still need to understand where the distribution comes from, whether it can change, and what they’re sacrificing to receive that deliciously large yield.

Consider ETFs

Covered-call exchange-traded funds provide one possible answer. These funds own shares and sell call options, giving another investor the right to buy those shares at a predetermined price. The ETF collects option premiums that can support larger monthly distributions, although some future share-price gains may be surrendered in exchange.

Hamilton Canadian Financials Yield Maximizer ETF (TSX: HMAX) packages that strategy around 10 major Canadian financial companies. Investors receive exposure to several familiar, large market cap names without selecting each stock individually.

Approximately 76% of the portfolio was invested in banks at the end of July. HMAX then writes covered calls to generate additional income. The dividend stock doesn’t use leverage, which removes one potential source of trouble when markets go haywire.

The strategy has recently benefited from the strength of Canadian financial stocks. HMAX produced a one-year total return of 40.1% through July 31, including distributions. The dividend stock’s latest monthly distribution was $0.17 per unit, producing an annualized yield of approximately 11.2% at its recent net asset value.

Earning income

That payment isn’t carved into a stone tablet. Monthly distributions have varied slightly as option premiums, dividends, and market conditions changed. Investors should therefore treat $64.51 as the income produced by the latest distribution rate, not an eternally binding promise.

At a recent market price of approximately $18.20, a $7,000 contribution would purchase 384 full HMAX units. That would invest $6,988.80 and leave $11.20 in cash. If the latest distribution continued, those units would produce $64.51 each month, or $774.14 annually.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
HMAX$18.20384$2.016$774.14Monthly$6,988.80

HMAX charges a 0.65% management fee and remains heavily concentrated in Canadian financials. Anyone already holding several bank stocks may be buying more of what they already own with slightly fancier wrapping. Learning how ETFs work can help investors spot that overlap before it quietly takes over the portfolio.

Covered calls can also limit gains during a powerful bank rally, while falling financial stocks would reduce the value of the investment. The monthly distribution can change as well, making HMAX better suited to investors who understand that high income and guaranteed income aren’t the same creature.

Bottom line

For investors comfortable with those risks, reinvesting the $64.51 could steadily purchase additional units and increase the next round of income. One annual contribution won’t replace a salary, but repeated contributions can gradually turn that modest monthly deposit into a far more convincing TFSA paycheque.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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