The idea behind the Snowball Effect is to turn a TFSA into a pension plan that increases its tax-free income every year.

The partners purchase high quality, blue chip, dividend bearing equities and funds inside a TFSA with the goal of income - currently their Snowball mandate is yielding approximately 10%. Here's how it works and why it’s important:

Let’s say Mrs. Smith has a TFSA worth $100K of equity mutual funds and a cash account with taxable securities. George and Scott replace those funds in the TFSA with their pre-selected Snowball securities on January 1, 2024. At 10%, $100K would generate $10,000 worth of tax-free income. This income is sent to Mrs. Smith either monthly or annually.

The TFSA rules say that on January 1, 2025, Mrs. Smith can contribute another $7K, plus anything taken out the previous year (in this case, $10,000). The partners move a total of $17,000 (7K + $10,000) from Mrs. Smith's nonregistered, taxable, account to her TFSA. This sum is then invested in the existing Snowball securities currently in the TFSA.

Assuming the original $100K has not fluctuated (and chances are it will somewhat), there is now $117,000 earning 10%. This translates into $11,700 worth of tax-free income to Mrs. Smith in 2026. This income is sent to Mrs. Smith either monthly or annually. On January 1, 2026, Mrs. Smith can again contribute another $7K plus $11,700 (what she took out in 2025) for a total of $18,700. Now, the TFSA (again assuming market values stay the same) will be $135,700 and at 10% = Mrs. Smith can look forward to $13,570 of tax-free income in 2026. See the snowball?

Annual TFSA Dollar Limit