Have you ever felt like you’d like to invest more, but the overwhelming amount of options, language (financial jargon) and fear of doing the wrong thing have kept you from taking that next step and chatting to our team at Victus Group?
Our team of experienced financial planners strives to help you preserve all of your precious assets by applying a personalised approach to your financial goals. Tax-free savings accounts (TFSAs) are a great way to start with something that is accessible, or add an extra element of diversification to your existing portfolio.
Over the years, we have seen many South Africans taking advantage of TFSAs. Our country has one of the lowest household savings rates globally, so in around 2015, our government established TFSAs as an easy and safe way for citizens to increase their savings.
In a nutshell, if you have taxable income, you can deduct up to 27,5% of your income in the form of a Retirement Annuity contribution or into a TFSA and get up to a 45% discount on your contribution via the tax system.
But, in the interest of helping taxpayers develop a habit of saving, they have put an annual and a lifetime limit in place, which means you can’t simply dump a whack of cash into the account as and when you please. Each year, you can only invest R36 000 (or R3000 per month), and in your lifetime, you can invest a maximum of R500k.
The goal is to get into the habit of saving and holding onto the money saved.
The use of tax-free savings and investment accounts is generally most appropriate in the following circumstances:
- Achieving long-term investment goals.
- Saving for retirement when your income is below the income tax threshold, and you’re not currently entitled to any personal income tax relief contributions made to retirement funds.
- Topping up retirement savings over and above the maximum amount per annum (namely R 350k) that one can receive tax breaks on. Given that most South Africans are under-funded for retirement, there is a need for most working people to play catch up and contribute more than the deductible limits in retirement funds. It is generally recommended that investors use all the tax breaks available for retirement funding investments before using TFSA.
In short – when you have a portion of money that you can nest away for an extended investment period, a TFSA should most certainly be one of the options that you consider.
However, everyone has their own unique set of circumstances. It is, therefore, always worth seeking professional advice and carefully scrutinising any investment to see if it’s your best option. So don’t hesitate to arrange a meeting if you wish to discuss whether a TFSA could help you achieve your personal financial goals.