What is the objective of a TFSA – To Save!!
So, what is the difference with this type of Account compared to other savings options….
- No Tax is charged on interest or dividends earned and no Capital Gains Tax on withdrawal!
- A Tax Free Savings can be opened in various ways – in a Collective Investment Scheme(Unit Trust), Investment Fund, and/or Bank Account – and in all cases, the overriding benefit and real value is to allow your savings to grow, and compound with your investment returns over the long term!
- A Tax Free Savings Account is also a good supplement to Retirement Savings.
- Retirement Contributions are tax-deductible (Currently 27.5% of the higher of gross remuneration or taxable income, subject to an annual limited of R350 000). In other words, where you obtain a tax benefit on Retirement Contributions now, you obtain Tax Benefits from your Tax Free Savings on growth and withdrawal in the future!! You can have a combination of tax savings!
- Tax Free Savings Accounts have some limits
- Contributions are currently limited to a maximum amount of R33 000 per person per annum. Contributions can be made monthly or as a lump sum within this annual limit.
- Lifetime Contribution is limited to R500 000 per person
- If you withdraw from your Tax Free Savings Account, the amount withdrawn cannot be replaced. This is an important point to understand!
Your contribution has already been accounted for!! For Example, you contribute R33 000 and withdraw R10 000. This is R10 000 less out of your savings account. You cannot add it back within the same year, nor can you add it in addition to your next year annual limit of R33 000. It is forfeited permanently, thereby reducing the amount of savings in your Savings Account! This is an essential consideration before withdrawing funds!!
- You can open a Tax Free Savings Account for your child! You simply need your child’s birth certificate to open an account. (One thing to take note of is that if the parent wants to withdraw money, the funds have to go into the child’s bank account).
The contribution limits for a child are the same as an adult – and therefore if savings are wisely invested, the compounding effect will give the child a significant advantage by the time they are an adult. The annual contribution limit of R33 000 will take 16 years to reach the allowed lifetime contribution of R500 000. A great savings plan for the young ones!
- No Performance Fees may be charged on Tax Free Savings Investments.
Therefore, the following fees may be applicable:
- Service Fee of the selected Fund
- Financial Adviser Fee
- Platform Fee (linked service providers)
- An initial fee may be charged at the discretion of the investor and broker
- You can open a Tax Free Savings Accounts with any number of providers as long as your contribution limit is not exceeded. If you exceed your cap, you will be taxed heavily – 40% on every cent over the limit!! As from 01 March 2018, you will be able to transfer between TFSA.
- Tax Free Savings underlying investments do not need to be Regulation 28 This regulation, issued under the Pension Fund Act, limits the extent to which retirement funds may invest in particular assets or in particular asset classes
Investing in a Tax Free Savings Account where you maintain regular savings and growth from compounding returns, provides you with a great Savings Plan for both yourself and your children – and with tax benefits!
Elena Bevilacqua CFP® Professional
Senior Financial Planner
BCom Hon: Financial Management
EDGE FINANCIAL GROUP
Tel: (021) 555 0839Read More