Investing and not paying tax on your returns sounds too good to be true. However, using the Tax Free Savings Accounts (TFSA) allows you to invest without paying tax on any earnings, dividends or interest earned within the account. This system was introduced by the government in 2015 to encourage South Africans to save more by allowing them to save on tax.
How do you take advantage of this initiative and how do you use a tax free savings account? Is a savings account right for you?
Maximise Your Benefit!
Each year, you are allowed to invest R36 000 in tax free savings accounts. More than that and you will be taxed on your savings contributions. There is also a lifetime limit of R500 000 per person. Try to contribute as much as you can, as early as possible to take advantage of the tax savings over time.
Maximising this benefit by contributing as much you can afford is vital to taking advantage of this savings opportunity.
Automate Your Contributions
Automating your contributions is the best way to remain consistent. Because you are limited to a specific amount of contributions per year, automating your contributions allows you to stay under this amount.
Automating your tax free savings is easy! You can automate your savings by setting up debit orders or scheduled transfers into your tax free savings account.
Think Long Term
The no tax environment really makes sense over the long term. These small savings over the short term can add up over 10 or 20 years of growth. In a tax free savings account you are limited to R500 000 in a lifetime, but when you reach this amount the money can continue to grow.
It is important to take into account that when you have contributed money to your tax free savings account it adds to your lifetime limit. However, when you take money out of the account, you cannot add it back without using up more of your lifetime and yearly limits.
As an example, if you added R10 000 to your tax free savings account, you could contribute another R490 000 over your lifetime or R26 000 for the year. If you take R5 000 out of the account, you can still only add another R490 000 and R26 000 for the year.
It is vital to think long term and not to withdraw your money prematurely.
Debt is often one of the items that takes up a lot of your monthly budget giving you less to save. Our team at Bond Optimiser are dedicated to working with our clients to help them save up to R7 000 a month by consolidating their debt into their home mortgage. Speak to one of our assessors today.