A tax-free savings account (TFSA) is a type of savings account that allows you to save money without paying tax on the interest or capital gains. Currently, individuals are allowed to put up to R36 000 per year into their TFSAs, with a lifetime limit of R500 000. It is important to remember that these limits are set by law and might change in the future.
Who is the Tax-Free Savings Account for?
The tax-free saving account is a perfect option for clients who want to save towards a long-term goal and enjoy investment returns that are exempt from taxes. It appeals to various investors who wish to make the most of their annual tax-free savings allowance. Nevertheless, individuals requiring regular access to their funds would find this product unsuitable.
Product specific features:
- Tax-free growth: With a tax-free savings account there is no tax to be paid on your savings; it is exempted from capital gains tax, income tax on interest and dividends tax. This can help your money grow faster over time as your portfolio growth doesn’t decrease by paying tax.
- More than one: You can open as many tax-free savings accounts as you wish, but you must manage your contributions to all within the annual and lifetime limits. If you exceed the annual limits, you will be charged a 40% penalty by SARS.
- Flexibility: You can use your TFSA for any purpose, such as supplement your retirement savings for retirement in addition to having a retirement annuity or goals-based savings goals like saving for a down payment on a house.
- Affordability: Starting with a minimum monthly contribution of as little as R250, you can open a Tax-Free Savings Account.
- Accessibility: You can access your TFSA money at any time, without penalty. But do bare in mind all withdrawals affect your annual and lifetime balances.
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