In an article recently published on Moneyweb Today (by Paul Leonard, CFP, Regional Head, Citadel), several points were made that succinctly provided useful insight for those considering the options about investing in a TFSA, and deciding whether or not it would be the most appropriate savings vehicle.
Before making any final decisions, it’s always best for us to meet and assess your investment plan based on your financial needs analysis - but these pointers should help you understand the nature of this product and how it would work inside of your financial plan.
The use of tax free savings and investment accounts is generally most appropriate in the following circumstances:
- Achieving long-term investment goals
- Saving for retirement when your income is below the income tax threshold, and you’ll consequently not enjoy any personal income tax relief contributions made to retirement funds
- Topping up retirement savings over and above the maximum amount per annum (namely R 350k) that one can receive tax breaks on. Given that most South Africans are under-funded for retirement, there is a need for most working people to play catch up and contribute more than the deductible limits in retirement funds. It is generally recommended that investors make use of all the tax breaks available for retirement funding investments before using TFSA. This is in line with the government’s objective to ‘complement initiatives and incentives to promote retirement savings”
- Savings for retirement when you are uncertain about your long term income or job security and therefore may need to access the capital should you become unemployed
- Saving for retirement if you are uncertain as to where or not you will emigrate, in which case you may want to realise the investment to expatriate your capital should you leave
In short - when you have a large amount of money that you can nest away for an extended investment period, a TFSA should most certainly be one of the options that you consider.