How to Use Your TFSA to Earn $333 Per Month in Tax-Free Income

A Tax-Free Savings Account(TFSA) is a great place to earn monthly tax-free passive income. In fact, it could be the best spot, no matter your age. Every dollar you collect stays in your pocket, with no taxes on dividends, interest, or capital gains, ever. Therefore, your income compounds faster and your long-term wealth grows more efficiently than it would in a taxable account. When you fill a TFSA with reliable monthly payers, you essentially create one of the most powerful and flexible wealth-building tools available to Canadians.

Getting started

Using a TFSA to earn monthly tax-free income starts with choosing investments that pay you regularly and reliably. The TFSA shelters all dividends, distributions, and capital gains, so you keep every dollar those investments generate. Many Canadians start by holding high-quality monthly dividend stocks or real estate investment trusts (REIT) that provide steady cash flow, like utilities, pipelines, or residential real estate trusts.

The next step is to reinvest that income, especially early on, to speed up compounding. When your monthly payouts buy more shares, those new shares start generating income of their own, creating a snowball effect that becomes more powerful each year. Over time, this can turn even modest contributions into a meaningful income engine.

As your TFSA grows, you can shift the mix depending on your goals. Some investors focus on higher-yield names for larger monthly payouts, while others blend in lower-yield but faster-growing stocks to keep income rising over the long term. The beauty of the TFSA is the flexibility. You can withdraw anytime without penalties and continue to build tax-free income year after year.

Consider EIF

Exchange Income (TSX:EIF) works well in a TFSA and could be the best option out there. That’s because it delivers the kind of steady, predictable cash flow that monthly income investors want. The dividend stock runs a mix of aviation services and specialized manufacturing businesses, most of which operate through long-term contracts that don’t swing wildly with the economy. That stability shows up in its results. Revenue continues to grow year after year, cash flow stays resilient, and management prioritizes keeping the dividend strong.

Another advantage is EIF’s long track record of dividend growth. It doesn’t just pay a monthly distribution, but has increased that payout steadily over the years, signalling confidence in the underlying cash flow. Those raises matter even more inside a TFSA because every extra dollar flows directly to you without tax friction. EIF also reinvests in new acquisitions that expand its earnings base, which can support future dividend increases. The company tends to choose niche businesses with strong competitive positions, giving the whole portfolio a defensive feel even while it continues to grow.

What’s more, EIF has earned a reputation for disciplined management. This is essential for anyone trying to build long-term, tax-free passive income. Its payout ratio stays at a sustainable level, currently at 95%, and the dividend stock has shown it can navigate tougher periods without cutting distributions. That resilience makes the monthly income feel more dependable, and the diversification within its business segments adds another layer of safety.

Bottom line

For TFSA investors who want a mix of yield, stability, and long-term income growth, EIF offers one of the strongest monthly dividend profiles on the TSX. And right now, here’s how much you would need to invest to create that $333 each month.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENTEIF$81.671,448$2.76$3,996.48Monthly$118,326.16

With regular contributions, disciplined investing, and time, the TFSA becomes one of the easiest ways to turn the market into a steady, dependable source of monthly passive income, especially with EIF on board.

The post How to Use Your TFSA to Earn $333 Per Month in Tax-Free Income appeared first on The Motley Fool Canada.

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More reading

• Beat the TSX With This Cash-Gushing Dividend Stock
• Got $500? 5 Top Canadian Stocks to Buy and Hold
• Here’s the Average TFSA and RRSP at Age 65 for Canadians
• Time to Ditch TELUS Stock and Buy This Dividend Play Instead?
• The 5 Top Defence Stocks in Canada Right Now

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.