TFSA Tips: How to Become a Canadian Millionaire

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Achieving a seven-figure balance in an account is possible, especially if the investment vehicle is a Tax-Free Savings Account (TFSA). Many Canadians dream of becoming a millionaire someday through their TFSAs.

On November 22, 2023, the Canada Revenue Agency (CRA) announced a $500 increase in the dollar limit of the TFSA for the second time in two years. High inflation pushed the annual contribution limit in 2024 to $7,000. This latest increase in contribution limit gives TFSA users fresh vigour to save and invest.

Building wealth takes time, but the period shortens if you leverage your tax-advantaged account in your journey to one million. The following are some TFSA tips for becoming a Canadian millionaire.

Harness the power of compounding

Since all contributions, interest, dividends, and capital gains are tax-free, harness the power of compounding in your TFSA. Hold incoming-generating assets like TSX dividend stocks, but not cash. If kept idle, you waste your contribution space because the value erodes due to inflation.

Consider purchasing shares of Bank of Montreal (TSX:BMO), backed up by a monthly income stock like Exchange Income Corporation (TSX:EIF). Reinvest the dividends for tax-free money growth.

Earn tax-free quarterly dividends

BMO is Canada’s dividend pioneer, oldest bank, and third-largest financial institution. The $79.1 billion market cap bank started paying dividends in 1829 and continues to this day. At $110.43 per share, the Big Bank stock pays a 5.31% dividend (quarterly payout).

Besides the unmatched dividend track record, BMO reported sales growth amid a challenging operating environment. The bank’s trailing 12-month revenue is $35.8 billion with a 14.2% profit margin. Also, its most recent year-over-year quarterly sales growth is 110.4%.

BMO extended its presence in the U.S. following the completed acquisition of Bank of the West and expects potentially more upside. “We continue to deliver solid financial results reflecting the strength, diversity and active management of our businesses in an evolving environment,” said Darryl White, CEO of BMO Financial Group.

White adds the Bank of the West drove good pre-provision pre-tax growth in Q3 fiscal 2023. Moreover, BMO’s capital and liquidity remain strong. The Board-approved 6% dividend hike from last year is welcome news to investors.

Earn tax-free monthly dividends

Exchange Income Corporation, or EIC, has been paying monthly dividends since 2004. The $2.1 billion diversified, acquisition-oriented company derives revenue from two core business segments, Aviation & Aerospace and Manufacturing. EIC is thriving, as evidenced by the new records in quarterly revenue and free cash flow (FCF).

In Q3 2023, revenue and FCF increased 17% and 3.5% to $688 million and $117 million, respectively, versus Q3 2022. Net earnings rose 12% year over year to $49.5 billion. EIC’s CEO, Mike Pyle, said, “Our third quarter was characterized by strong underlying fundamentals.”

If you invest today, the industrial stock trades at $44.80 per share and pays a hefty 5.81% dividend.

Start young

You set yourself up for success in retirement if you save and invest while young. To accelerate your journey, support your TFSA with a Registered Retirement Savings Plan (RRSP) if finances allow. Having two powerful investment vehicles and a longer time horizon increases the chances of becoming the next millionaire in Canada.

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Fool contributor Christopher Liew 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.