As you may have read in the press or heard on the radio, everyone is abuzz with the news that government has created a new savings scheme which will incentivise individuals through tax exemptions. It is supposed to encourage a savings culture in South Africa.
Is it worth the hassle?
It is a small scheme, you can only save R30 000 a year into your Tax Free Saving Account, (TFSA). The overall maximum that you can put into this account, is set at R500 000 over your life time. These limits will probably go up over time, to allow for inflation. You may make withdrawals at any time, but you may not pay the funds back into the account within that specific tax year.
If you are in the 41% tax bracket, these accounts will grow tax free, unlike endowment policies that are taxed at 30%. No Dividend tax, no CGT, no tax on interest within the policy and no tax on withdrawals. In short, no tax!!
Assuming you pay R2 500 per month, i.e. R30 000 a year, the possible values are:
You can quite clearly see the effects of compound interest. *When looking at the investment performance over 15 years the growth @ 15% p.a. is double, for the same period @ 8% p.a.
It is important that you are on the right investment platform, in the right investments.
For some of you, the above may seem like a mere drop in the ocean. In our view, it is worth the hassle to sign the document and benefiting from this saving scheme. You may also open TFSA accounts for your children which could be a very effective means of saving for their education.
If you like to know more please contact Anneline at 021 424 5225
Nick Russell
Certified Financial Planner CFP®
Please note: This article does not constitute advice