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Six myths about tax-free savings accounts

Tuesday, 21 April 2015   (0 Comments)
Posted by: Author: Ingé Lamprecht
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Author: Ingé Lamprecht (Moneyweb)

Setting the record straight.

As South African investors have started to weigh their tax-free savings account options since the launch on March 1, a number of questions (and misperceptions) have come to the fore.

In this article, Niki Giles, chief operating officer at Sygnia, highlights six incorrect assumptions about tax-free savings accounts.

1. You don’t have access to your money until a future date

Giles says a lot of investors think they can’t access their money until some future date, but this is not the case. Investors have access to their money at any time (both the capital and the income).

However, once money is withdrawn from the account, any additional deposits will be subject to the annual capital contribution limit of R30 000 (and the lifetime capital contribution limit of R500 000), she says. Any contributions made, even if subsequently withdrawn from the savings account, will therefore forever be counted under the R500 000 lifetime limit.

For example: If Investor A deposits R30 000 into a tax-free savings account on March 1 2015, and another R30 000 on March 1 2016, and withdraws R15 000 on October 1 2016, the investor won’t be able to put the R15 000 back until March 1 2017 because they have already reached the R30 000 capital contribution limit for that tax year (March 1 2016 to February 28 2017).

She says some products on offer, such as fixed deposits, may have a maturity term, but in that case the money must be accessible within 32 days.

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