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There has been a lot of commentary and discussion around Tax-Free Savings and lots of adverts on the radio, but what is a Tax Free Savings Account and what is in it for you.
Well, to be honest, the immediate benefits are pretty small, but if you are diligent and stick to accumulating the maximum allowable to your Tax-Free Savings each year (R33,000.00 per annum currently), taking into account the benefits of return and compounding, you will slowly start to see the benefits as your “investment pot” grows and becomes more significant.The current maximum contribution over time is currently still R500,000.00.
Although there are currently annual interest rebates (currently R23,000) and CGT annual rebates (currently R40,000), these may change or reduce in the future. Building up your Tax Free Savings Account balance will then become more significant from a tax savings perspective.
The way that the Tax-Free Savings legislation has been put in place is intentionally more aligned to longer term savings. In a way similar to a Retirement Annuity, but without the restrictions of no withdrawals and no restrictions on how those withdrawals are made and when.
Tax Free Savings should be used by all who pay tax. They should however be used for longer term savings, preferably towards retirement savings in my view. I say this because once you have made a withdrawal from your Tax Free savings account, you are NOT able to “top up (replace what you have withdrawn)” that amount back into your Tax Free Savings account. In other words, once you have made a withdrawal from your Tax Free Savings account, you may never replace that amount again… ever, under current legislation.
Some common questions you may have..
Yes, there are certainly limitations you need to be aware of. They are as follows:
Your Tax Free Savings Account will be dealt with according to your Will or depending on the way the Tax Free Savings Account is structured, it may be dealt with/distributed based on who you have nominated as your beneficiary/s. You will need to clarify this depending on the administrator you use. Ultimately, it will be handled according to your wishes.
As of 01st March 2018, you are now able to transfer your Tax Free investment between product providers as either cash or as unit transfers.
NB - Important to remember if doing a transfer:
As I have mentioned, if you diligently add to your Tax Free savings Account every year, it will take you just under 15 years to accumulate towards your (current) lifetime maximum contribution allowance of R500,000.00.
If you look at it this way, although the benefits are small in the beginning, as time passes and the benefits of compounding start to work and the very likely increase in the annual maximum contribution amount (currently R33,000.00) as well as the Lifetime maximum of R500,000 increases, you could find that the benefits become quite significant as your overall investment grows.
If what you have read above makes sense to you and you would like to set up a Tax Free Investment Account, please give us a call or pop us an email and we will get back to you shortly.
I am a self-confessed financial planning fanatic. When I am not building new courses for my clients or guiding clients through how best to Plan Financially for their lives I enjoy spending time with my kids on the beach or on our boat. Travelling and spending time with people, to understand better what makes and constitutes success and reveals life's purpose to us all, fascinates me.
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