Why save in a tax-free savings account?

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With the benefit of time and compound interest, your money can grow faster in a tax-free savings account compared to a regular savings account because you don’t pay any tax on the investment return – for the lifetime of the investment.

A tax-free savings account is therefore an effective way to save for your goals, because any interest, dividends or capital gains from your tax-free savings account will be free of tax.

Saving in a tax-free savings account gives you flexibility in that you can contribute on a monthly basis, make adhoc contributions or annual lump sums – but be sure not to contribute in excess of the annual limit which is determined from time to time. You can withdraw from your investment at any time, but the amount withdrawn may not be out back at a later stage.

How much can I save in a tax-free savings account?

National Treasury is responsible for determining the annual limits. Presently, the total annual contribution in a tax year may not exceed the annual contribution limit, which is currently R33 000 per tax year. The total lifetime contribution may not exceed R500 000. Be sure to track your payments to avoid exceeding the limit.

Benefits of a tax free savings account

Contributions to a tax-free savings account are made from post-tax income.

A tax-free savings account is therefore an effective way to save for your goals, because any interest, dividends or capital gains from your tax-free savings account will be free of tax.

No tax is payable on withdrawals.

Can I have more than one tax-free savings account?

There is no limit on the number of tax-free savings accounts you can have. Make sure your annual payments across all approved tax-free savings accounts do not exceed the annual contribution limit.

What happens if I invest more than the annual limit?

If you invest more than the annual contribution limit stipulated by National Treasury, SARS will impose a tax penalty of 40% on excess contributions. To avoid penalties, make sure that your annual payments across all approved tax-free savings accounts remain within the annual limits.

Who qualifies for this investment?

A tax-free savings account can only be opened for an individual / natural person. You can open one for each individual in a family, but cannot open one in the name of a trust or a company.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)