Category Retirement
SUB CATEGORIES Annuties |  General |  Savings & Investments | 

It’s never too late to start – how you can maximise on your tax-free savings account in the new financial year

10 March 2022 Martin Riekert, Executive Head: Momentum Retail Investments

The new tax year is now in full effect and even though contributions into a tax-free savings account (TFSA) for the previous financial year had to be done before the 28 February 2022, this does not mean you cannot start with good financial habits. Even though the government has not made any adjustments to the contribution limits into a TFSA this is still a good investment mechanism to encourage South Africans to get into a culture of saving.

This means you have a full year to make contributions towards your TFSA up until the end of February 2023.
According to Martin Riekert, Executive Head of Retail Investments at Momentum Investments, this is an opportunity you don’t want to miss.

“You’re allowed to put up to R36 000 (R3 000 a month) into a TFSA every financial year, the main benefit of saving this way is that you don’t have to pay any taxes on the growth of your investment, which can improve your long-term returns. It’s a no-brainer to take advantage of this,” says Riekert.

For investments not held in a TFSA, you’re liable to pay tax on the interest your investment earns you, any dividends it pays you or any capital gains you may make when you sell it – like you would do when receiving any kind of income.

Riekert mentions that currently there is a lifetime limit on contributions of R500000.

“You can put money in and take money out as and when you like with a TFSA – you won’t get penalised for doing either – but it’s important to know how you’re affecting your lifetime limit,” Riekert says.

“If you put R36 000 into your account in one financial year, over the rest of your life you can only put in another R464 000. Therefore, if you withdraw that R36000 your lifetime tax free limit will stay at R464 000 rather than go back up to R500, 000,” Riekert explains.

The penalties for investing more than the contribution limits can be hefty. “If you contribute more than the limits permit, your gains will be taxed at 40%,” Riekert says.

Keep the value of compound interest in mind. If you get a tax-free savings product for your child the day he / she is born, and keep on putting the maximum money in, the compound interest will ensure that they have enough to retire without saving another cent. That is, as long as they do not use the money beforehand. Just let it lie there for 40 odd years.

Another way to pay less tax, is to put your money in a retirement annuity. The contribution you make towards the retirement annuity is tax deductible, so by contributing towards your retirement annuity, you pay less tax.

“At the end of the day, the earlier you invest, the more you top up your investment and the longer you leave it to grow without touching it, the better your chances of generating returns on your investment.”

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