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What a Tax Free Savings Account is and how it worksThe precise fees involvedThe maximum you can and should be investingHow to add it to your existing portfolioWho can invest in a Tax Free Savings AccountHow to use a Tax Free Account to invest for your childrenThe 6 myths about tax-free savings accounts you need to be aware ofAnd exactly why a Tax Free Savings Account is so necessary!
https://www.jse.co.za/taxfree
https://www.jse.co.za/taxfree
SIX MYTHS ABOUT THE TAX-FREE SAVINGS ACCOUNT
Adapted from Niki Giles (COO – Sygnia)Interview with Moneyweb, 20th April 2015
#1 You don’t have access to your money until a future date Investors have access to their money at any time (both the capital and the income)
However, once money is withdrawn from the account, any additional deposits will be subject to the annual capital contribution limit of R30 000 (and the lifetime capital contribution limit of R500 000). Any contributions made, even if subsequently withdrawn from the savings account, will therefore forever be counted under the R500 000 lifetime limit.
For example: If Investor A deposits R30 000 into a tax-free savings account on March 1 2015, and another R30 000 on March 1 2016, and withdraws R15 000 on October 1 2016, the investor won’t be able to put the R15 000 back until March 1 2017 because they have already reached the R30 000 capital contribution limit for that tax year (March 1 2016 to February 28 2017).
#2 Your capital is guaranteed It is possible to lose money in a tax-free savings account, depended on the underlying assets
Tax-free savings accounts allow investments in a wide variety of asset classes (including equities, bonds, listed property and cash) with varying degrees of risk.
National Treasury has specified that these investments shouldn’t be exposed to excessive market risk, it is not quite clear what exactly it considers to be excessive levels of market risk.
Different product providers have launched savings products underpinned by a variety of different investment options.
#3 Tax-free savings accounts work like retirement annuities (RAs)
deposits into a tax-free savings account are made with after-tax money.
any withdrawals from a (tax free) savings account are completely tax-free, while in case of an RA (or an annuity purchased after retirement) all withdrawals and income are taxable.
Money in a savings account is also accessible at any stage, while money invested in an RA cannot be accessed before age 55.
A RA falls outside the estate of an investor upon his/her death, a tax-free savings account will form part of the estate.
“although a tax-free savings account can’t be used as security for debt it can still be attached by creditors (unlike a retirement product that is protected).”
#4 It is the most cost-effective way of saving While no investment options with performance fees are allowed within savings products, there is no restriction on the asset manager’s flat fee.
“Some savings products charge enormous management fees.”
The man in the street needs to be aware of what he is paying in fees to the asset manager, the product provider (possibly the linked investment service provider or LISP) and to the broker or financial advisor.
#5 You can’t switch between product providers “Investors won’t be able to transfer their tax-free savings account from one product provider to another during the current tax year, but this is a temporary arrangement.”
National Treasury has indicated that the transfer of tax-free savings accounts will be allowed from March 1 next year.
#6 You can invest in shares through a tax-free savings account Direct share investments are not allowed in tax-free savings accounts!
“Currently legislation allows two kinds of platform providers to offer tax-free savings accounts – LISPs and stockbrokers.”
“Investors who do decide to access a tax-free savings account through a stockbroker will do so because they want access to exchange-traded funds (EFTs), which are allowed in the accounts.”
http://www.vunaniprivateclients.co.za/trade/tfsa/getstarted
