Passive Income TFSA: How to Earn $4,000 a Year Tax Free

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The TFSA offers retirees and other dividend investors a way to generate significant passive income that won’t push them into a higher tax bracket or put OAS pension payments at clawback risk.

Passive income options

The surest way to get passive income in a TFSA is to buy a GIC. The capital is 100% guaranteed and you receive the rate of return offered by the GIC. Unfortunately, the trade-off for safety is a low rate of return. In fact, the best GIC rates available in Canada today are nowhere near the rate of inflation.

As a result, many income investors are using dividend-paying stocks to earn better returns. Owning stocks carries the risk that the value of the stock will decrease. On the upside, most high-dividend stocks increase their payouts almost every year. This increases the return on the initial investment and stock prices tend to rise over the long term.

The TFSA limit for 2022 is $6,000. This brings the cumulative contribution room to a maximum of $81,500 for residents who were at least 18 years old when the TFSA was created in 2009.

ECB

ECB (TSX:BCE)(NYSE:BCE) is a leading dividend-paying stock that offers an attractive yield and very low risk of payout reduction. The stock price also tends to hold up well when the broader market is hit, though it’s certainly not immune to pullbacks.

BCE is a leader in a lucrative market with few serious competitors. The company provides essential mobile and internet services and has a strong media business. BCE continues to make the necessary investments to drive revenue growth and protect its competitive position. The expansion of the 5G network is a good example.

BCE shares currently offer a dividend yield of 5.3%.

TC Energy

TC Energy (TSX:TRP)(NYSE:TRP) is a North American energy infrastructure leader with over $100 billion in assets located in Canada, the United States and Mexico.

The company primarily focuses on natural gas transportation and storage, but TC also operates power generation facilities and pipelines. The company is large enough to make strategic acquisitions to drive growth and has a $22 billion capital program to increase revenue and cash flow over the next five years.

TC Energy intends to increase the dividend by 3-5% per year in the medium term. The current payout offers a yield of 5.45%.

Natural gas has a positive future due to its much lower carbon dioxide emissions when burned compared to coal and oil. TC Energy’s ongoing infrastructure and developments will enable the company to take advantage of growing global demand for North American natural gas over the next few years.

The bottom line on the best stocks for passive income

BCE and TC Energy are just two examples of top TSX dividend stocks that investors can buy to generate stable TFSA income. A balanced dividend portfolio can easily yield 5% today. This would give investors $4,075 in tax-free annual passive income on $81,500 in TFSA investments.

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