The Wealth Room

The tax-free savings account: a must in your portfolio

FEATURES AND BENEFITS OF THE TAX FREE SAVINGS ACCOUNT (TFSA)

The Tax Free Savings Account (TFSA) is a simple savings facility for you to use when saving over a medium to long-term. The growth that you will experience in the plan is completely tax free, which means large returns for you at the end of the day. The TFSA plan allows you to save and it offers peace of mind, because you can access your money at any time (subject to a few rules). However, the point of the TFSA is not to be accessed on a monthly (or even annual/short-term basis). Instead, it allows you to save for medium to long-term goals.

You have the flexibility to withdraw from a TFSA at any time. However, if you withdraw, it will count against your yearly (R30 000) and lifetime contribution (R500 000) limits. For example, if you invest R30 000, and you withdraw R10 000 before the end of the same tax year, you’re left with a balance of R20 000. This means that you will not be able to contribute for the rest of the year, as you will only be able to contribute again in the new tax year. To play it safe, always remember that your yearly contributions are limited to R30 000.

Because the growth in the plan is completely tax free, it means:

– There is no capital gains tax when you access your money or switch between funds.
– You don’t pay dividend tax on all dividends earned in an investment.
– You don’t pay any interest income tax, which is usually imposed on any interest earnings in an investment.
– You don’t pay tax on any withdrawals from the TFSA.

More features

You can choose whether you want to pay a monthly amount (R2 500 per month max or certain minimum requirements might be applicable) or make annual lump sum contributions (R30 000 p.a. max) into your TFSA. Important to remember is that any contributions above these limits will be subject to 40% tax. So, please don’t go there!

You don’t have to commit to a specific investment term for your monthly investments. You can select how long you want to make payments into your plan, and how long you want to keep your money invested. However, keep in mind that the longer your money is invested, the more you will benefit from tax-free growth.

Even though there are limits as to how much you can invest, there are no limits on the growth of your investment. So once again, the longer you stay invested, the more you benefit from tax-free growth in the long run.

IF YOU WANT TO INVEST IN A TAX-FREE PLAN, GET IN TOUCH AND WE WILL HELP YOU SET THIS UP.

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