Tax-Free Savings Account (TFSA)

The famous saying goes there are 2 things that are certain in life, death and taxes” with the latter being more of a concerning issue for some of you. Most people are not too generous when it comes to the point of digging deep into their pockets to pay the due taxes received on their hard-earned investment income. What if I were to tell you that amongst the hundreds of investments on the market, there exists an investment on which you don’t pay a cent of tax on your interest, dividends and capital gains earned. Yes, my fellow readers, there is some hope. Well, now that I have your attention, you are probably asking yourself, is this too good to be true and what is the catch? Take a minute of your time to continue reading and you will probably thank me in a couple years’ time!
Now let’s get to the finer details.
Are you considering opening a long term investment account for yourself, spouse, kids or perhaps even your parents? Then look no further and consider a TFSA which was introduced in March 2015 by the National Treasury with the primary purpose of promoting non-retirement savings and help maximise tax relief by encouraging households/individuals to save for long term planning.
Distinguishing features are as follows:

  1. No tax payable on the investment income earned, the contributions are however not tax-deductible.
  2. The ability to withdraw your funds at any given time without penalties.
  3. Contributions are capped at an annual limit of R 36 000 and lifetime limit of R 500 000.
  4. Having multiple accounts on the condition that you do not exceed your annual R 36 000 limit.
  5. The flexibility of you choosing the amount to contribute on a monthly basis which commences from as little as R 250 per month.
  6. Minimal monthly transactions fees – This could vary from one bank to the next, so shop around for the best plan.
    The TFSA is offered by most financial institution’s from ABSA, FNB, Standard Bank, Old Mutual to Albaraka Bank.
    Some of you might say why invest when you can spend the money on a holiday or even something a little extravagant. Take a look at my example detailed below:
    If a 25-year-old invested R30 000 each year in an interest-bearing bank account, by the age of 65 they would have just more than R 1.5million after tax. In comparison, a TFSA with the same interest rate could be worth R 2.7million, because no tax is payable and the income is compounded.
    To maximise the tax efficiency of an investor’s investments, the TFSA is becoming an integral part of a financial plan.
    I hope that this gives you a better understanding of the TFSA and should you be keen on any other tax savings tips or tax services, feel free to contact our 118 team – admin
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