01 Aug Tax-free savings account – a smart investment
What makes a tax-free savings account a good investment you ask? Besides the obvious benefits of investing i.e. to make your money work for you instead of you working for it, investing for your child’s education etc. A tax-free savings account is a no-brainer investment for the following reasons:
- You can contribute a total of R30,000 pa – this can either be a lump sum or a monthly contribution not exceeding R2,500
- The investment provides shelter from income tax on interest, dividend tax and capital gains tax – this means that whatever you invest, no matter how big the return on your money, SARS will not tax it!
- Although investing is a long-term objective, should you for any reason need to withdraw from your investment, you can access your money very easily, normally within 7 days with most investment companies.
- You can use it as a ‘top-up’ on your retirement savings. If you have exceeded the 27.5% contribution into your retirement funds, a tax-free savings account is a great vehicle because of the tax benefits.
There are however a few pitfalls to look out for:
- Investing more than the maximum annual contribution of R30,000 will attract tax, so my advice, cap it at the required maximum.
- Fees charged by providers can erode your investment returns, make sure you understand the fees thoroughly.
As with any investment, for you to see significant growth and return on your money, one has to invest for the long term. Time is your greatest friend as an investor since the magic of compound interest can only really be noticeable over a long period of time. So be patient and stick to your investment goals. Avoid withdrawing from your investment no matter how tempting it is!