Tax Free Savings

I’m on a Journey of becoming financially free and have joined Ann Wilson’s Financial Freedom University (FFU).  She is known as The Wealth Chef.

After listening to and reading through the script of Module 1 Key Learnings, I started becoming more aware of the investment products out there.

One of my actively earned income flows is to assess portfolios of evidence for the National Certificate Business Analysis (NCBA) in South Africa.  Students submit workplace assignments and additional evidence, in the form of a portfolio, to be assessed against a set of assessment criteria.

While assessing one of these portfolios, I noticed some interesting information about Tax Free Savings (TFS) accounts.   I already knew that in South Africa a person may save up to R30k per year with a total of R500k over ones lifetime.

What I didn’t know is that from 1 March 2018, account holder may transfer funds from financial institution to another financial institution, but currently they may not.  The National Treasury initially stipulated that during the 1st year of introducing TFS, no transfers to and from these accounts would be allowed, to ensure smooth introduction of TFS.

TFS accounts must be accessible within 32 business days from the time that the money is requested by the client and at some banks you are able to access your funds within 24 hours.

And the whopper realisation was that when the account holder makes monthly contributions towards their TFS account and then does a withdrawal midway through the year, the subsequent deposits are added to the total contributions to date and the withdrawal is not subtracted from the total contributions.

Now, I don’t know how accurate this information is, so I’m inviting you to comment below and share your insights.

Comments

  1. Post
    Author
    larasuddes

    According to Caroline Ferguson, that is exactly how it works, except that for this tax year the annual contribution was increased to R33000, although the lifetime cap is still R500k.

    As it will take 15 years to reach the R500k max, there is a general expectation that this limit will eventually start increasing, but the best advice is to max out your annual limit in a tax-free stock-based TFSA (preferably focussed on ETFs) and to leave it there to grow. Do not be tempted to withdraw funds, rather wait until it has grown and you can live off the dividends or your annual capital growth exceeds what you withdraw for the year (yes, this will take a while)
    Do not use this account for your emergency fund or your save-to-spend pot as you would be wasting the tax advantage.

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