Who doesn't like a win-win situation? Top-up or invest in a retirement annuity or tax-free savings account before the end of February and see your tax liability decrease and savings increase!

Tax Free Savings Account (TFSA)

The TFSA provides tax benefits so that all growth in savings, no matter the source – income, capital or dividends – is tax free, and subsequent withdrawals are free of tax.

The product offers a broad range of investment options ranging from local cash to offshore equity; this is different to pre retirement savings which have investment restrictions limiting equity and foreign exposure. The annual contribution limit is R36,000, with a lifetime limit of R500,000. It is, however, subject to estate duty on death.

Retirement Annuities (RA)

An RA is, simply put, an individual pension fund – which can be held in addition to an employer fund – that allows people who are not part of a group scheme, or want additional savings, to enjoy the benefits of investing in a retirement fund. In terms of Prudential Investment Guidelines not more than 75% can be invested in equity and no more than 30% offshore.

From the point of view of tax benefits, these contributions are tax deductible up to the lesser of R350,000 per annum, or 27.5% of the greater of remuneration or taxable income including any taxable capital gain but prior to the deduction for donations.

All growth, no matter the source, is tax-free. There are potential benefits with respect to estate duties or executor fees on death.

Many financial commentators condemn the tax value of RAs but we’ve run the numbers and there is definitive value-add. It is, however, important to have a balance of discretionary and non-discretionary savings in your portfolio so that you create different tax and liquidity profiles.

It’s important to remember that investing only for a tax benefit is likely to lead to disappointment. So, you should first always consider the merit of an investment product itself and only thereafter assess the tax advantages, if any. 

As private wealth managers, we’re here to help you make better choices for your ultimate objectives - whether for current needs, retirement or legacy purposes - to build and preserve your wealth by diversifying your portfolio, investing for the long term, ensuring sufficient liquidity and optimising your investment results according to your specific risk tolerance. Partner with us for peace of mind.