Canada Revenue Agency: How to turn your TFSA from $ 6,000 to $ 300,000

The Canada Revenue Agency (CRA) taxes most of the income of Canadians. Thankfully, what we earn inside the Tax Free Savings Account (TFSA) is protected by the CRA.

Tips for your TFSA

Since its inception in 2009, the TFSA has helped Canadians save thousands of dollars in taxes. Since there is no new TFSA contribution room every year, Canadians should contribute to the bill every year to get tax-free compounding started as soon as possible.

Canadians who have been eligible for the TFSA since 2009 and have never contributed to a TFSA will have accumulated $ 69,500 of tax-free investment space.

Canadians can use the TFSA to achieve their financial goals, such as saving for a down payment for a home or even saving for retirement. The TFSA is also flexible as you can withdraw funds from it tax-free and pay the amount in a future year.

Of all asset classes, equities offer the highest long-term returns. Share prices are volatile in the short term, but they follow business fundamentals over the long term. A proven strategy for generating more consistent returns is investing in stocks with quality dividends.

A title with high dividends for your TFSA

You want dividend stocks that ensure the safety of capital and dividends. Right now, Manulife (TSX: MFC) (NYSE: MFC) offers just that. Even during this pandemic, its gains have been super resilient.

Notably, Manulife posted a net profit of $ 4.6 billion in the past 12 months. Since the insurer only pays around 46% of its earnings as dividends, its cash distribution is very safe.

At $ 21.58 per share, MFC stock is very cheap and trades at around seven times its normal multiple. This is an incredible discount from its intrinsic value, assuming a multiple of about 11.3 times the normal earnings.

Manulife is also a Canadian Dividend Aristocrat which has increased its dividend for six consecutive years. Its quarterly dividend of $ 0.28 per share is 12% higher than it was a year ago.

Due to the discounted shares and its large dividend, Manulife shares can offer total returns of over 17% per year over the next five years. Investors will get at least a substantial return from its generous dividend which currently produces 5.2%.

Turn your TFSA from $ 6,000 to $ 300,000

If you’re starting at a $ 6,000 TFSA this year and keep contributing $ 6,000 a year, you’ll go up to over $ 300,000 in 18 years with a 10% rate of return.

If you are able to invest 17% per year, such as potentially from our Manulife example, you can get a TFSA + $ 300,000 in 14 years instead!

In the future, the TFSA will have a tax-free room of at least $ 6,000 per year. This means you will have more opportunities to grow from $ 6,000 to $ 300,000! Four times $ 300,000 is already over $ 1,000,000. In other words, you can potentially build up to a $ 1,200,000 TFSA portfolio over the next 20 years or so with just $ 6,000 in annual contributions over four years.

Takeaway investor

Save and invest as much as possible within your TFSA. In the early years of your investment journey, your savings are extremely important. Use your savings to invest in high-level dividend stocks such as Manulife, stocks that trade at good valuations and provide a good dividend.

Dividends can help you buy new stocks in higher dividend stocks. Only take the money from your TFSA in an emergency, due to the fact that it takes you the money to grow internal tax free for as long as possible, potentially until retirement.

Silly contributor Kay Ng owns shares in MANULIFE FIN.