Start Your Tax-Free Savings before Retirement

Tax-free savings are still relatively new in South Africa as they were only introduced by the National Treasury in 2015 and are still not used effectively in client portfolios. Tax-free savings are mainly used as a sales tool without thought as to how an investors existing portfolio can be reorganised so that they can gain from the tax advantages that a tax-free savings account can offer. 

With a tax-free savings account an investor is able to contribute R33 000 per annum or a maximum lifetime limit of R500 000. The main benefit is the growth on these accounts and withdrawal or income generation is tax-free.

During the tax investment, there is no income tax, dividend withholding tax or capital gains tax. Also, once you start to withdraw an income from the investment it is tax-free. If a tax-free savings is used appropriately then it can be an excellent retirement planning tool, especially if it is started early enough but it can also be used by those approaching retirement or already in retirement. 

The earlier a tax-free investment is started, then the bigger the difference it will make to your retirement plan. 

Contributions to a tax-free savings plan can be done as either a new investment or by annually re-balancing part of a portfolio that you already have to benefit from the tax advantages, that is you can transfer R33 000 annually from an existing investment to a tax-free savings plan. 

When you are planning for retirement or are planning in retirement, then it is important to use the tax exemptions that are available in the most effective manner, which includes tax-free savings, retirement annuities and interest exemptions. Retirement annuities remain the most effective tool for your retirement plan as they offer tax-free growth within retirement annuities and ta x deductibility of premiums.

The real value of a tax-free savings account emerges over time, so its best to start investing sooner rather than later in order to access these benefits. 

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