Tax-free savings accounts (TFSA) offer a wide range of benefits and mostly designed to address a certain problem that customers come across in the financial lives. As you may know, investments methods or vehicles are mainly created and designed to meet specific individual needs and expectations
As explained, the TFSA should not be viewed as one-size-fits-all solution, as an investor, you must be open to many other opportunities that presents themselves to you in the process.
With these type of investments, you are entitled to invest up to R30 000 per year into a TFSA and your contributions are capped at a lifetime limit of R500 000. The lifetime amount of R500 000 will obviously be reached after R17 years for the R30 000 investments.
When to use tax-free savings accounts
- Achieving long-term investment goals;
- Saving for retirement when your income is below the income tax threshold, and you’ll consequently not enjoy any personal income tax relief from contributions made to retirement funds;
- Topping up retirement savings over and above the maximum amount per annum (namely R350 000) 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.
- Saving for retirement when you are uncertain about your long-term income or job security and may therefore need to access the capital if you become unemployed;
- Saving for retirement if you are uncertain whether you will emigrate, in which case you may want to realise the investment to expatriate your capital should you leave.
Article first published by Maya on Finance