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Tax-free savings accounts: a 40-year love affair

22 September 2015   (0 Comments)
Posted by: Author: Anthony Katakuzinos
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Author: Anthony Katakuzinos (Moneyweb)

Why a TFSA can be a valuable tool post-retirement.

Investors are starting to understand how investing in a tax-free savings account can help them save more. But what they have not yet realised is what a valuable tool it can be post-retirement.

The National Treasury introduced Tax Free Savings Accounts from March 1 2015, allowing individual investors to invest up to R30 000 a year tax-free. The capital investment is capped at R500 000 over the investor’s lifetime, while all proceeds earned – interest, dividends and capital growth – will be 100% tax-free.

Although Treasury would like to see lower income earners use these accounts to boost their savings, tax-free savings accounts are well suited to higher income earners who can afford to put away R30 000 a year over many years to build up to the R500 000 limit.

An investor’s life can be divided into two parts: pre-retirement when they accumulate assets and post-retirement when they consume assets. In the pre-retirement phase an investor can accumulate assets through a pension fund, topped up by a retirement annuity. Contributions to both these savings vehicles are tax deductible to certain limits. Any income earned or any growth in these products is tax free.

The maximum tax free contribution into a retirement annuity or retirement fund is 15% of an investor’s non-pensionable income. Once this threshold is reached, further retirement savings can be made into a tax-free savings account to enhance their retirement savings. While your contributions into a tax-free savings account are not tax deductible, your returns are. Over the long term this tax saving can be substantial – enhancing your compound returns by up to 2% per annum over the lifetime of your investment.

After you have put savings in these vehicles with their tax advantages, investors can then consider other investments such as unit trusts.

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Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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