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Tax-free savings account vs retirement plan

Wednesday, 11 February 2015   (0 Comments)
Posted by: Author: Ingé Lamprecht
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Author: Ingé Lamprecht (Moneyweb)

What the numbers do (and don’t) tell you.

Where does a tax-free savings account fit into my financial plan?

This may well be the question many investors will need to answer in the coming months.

The launch of tax-free savings accounts on March 1 this year offers a great opportunity for retail investors to access some additional tax savings. The accounts will allow individuals to invest R30 000 a year up to a lifetime maximum of R500 000 in a variety of asset classes. All proceeds on investments in these accounts – dividends, interest and capital gains – will be completely tax-free. (For more detailed information on tax-free savings accounts, you may want to read articles that were previously published on Moneyweb here and here.)

Tax-free savings accounts are part of government’s drive to reform non-retirement savings and are not explicitly intended as a vehicle to save for retirement. The idea is rather that these accounts will prevent South Africans from accessing their retirement savings in the event of a crisis. It is therefore envisioned to be more of a medium-term savings vehicle.

Yet, nothing prevents investors from using these accounts as a vehicle to save for long-term goals like retirement. In fact, some calculations suggest the real benefit of these accounts is only truly unlocked in the long run.

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