What are tax-free investments and why are they so powerful?
Tax-free investments are investment products supported by national treasury where you pay no tax on capital growth, interest or dividends – and there are no penalties for withdrawals.
These investments are one of the most powerful tax-saving tools available to savers – especially when one stays invested in them for the long-term. You can invest up to R2750 per month and R33 000 per year up to a lifetime limit of R500 000) – but don’t dismiss these investments because you think the limits are too low. Even small amounts that are compounded over time can grow to become very significant savings.
In fact, in 2019 we ran an analysis that showed that a TFI used effectively over a lifetime (say for your children) could result in enough savings for someone to live comfortably in retirement without needing to save. Find out more here.
How to use a TFI most effectively:
- Start early. Start a TFI for your children.
- Save for the long term and try not to withdraw.
- Do your research – make sure you invest with a reputable fund manager. Talk to your financial planner for assistance or use our robo-advisor to choose a fund that best suits your needs.
- Maximise your allocation to your TFI every year (up to the limit) to make the most of the compounding advantages over time.
- Don’t exceed the investment limits as you are taxed on any over contributions – but be sure to increase your contributions should the limits ever increase.