As of 2015, the National Treasury has introduced a number of incentives for tax-free accounts in a bid to encourage long-term, disciplined saving.
With respect to the tax-free savings and investment limitations, an individual may currently contribute up to R33,000 per year with a lifetime contribution limit of R500,000.
According to Roenica Tyson, investment product manager at Glacier by Sanlam, tax-free savings and investment accounts tick many positive boxes as part of a diversified financial plan.
She added that she would encourage every investor to consider including one in their portfolio, and take advantage of the opportunity to grow their savings without paying any tax on the interest, dividends or capital gains they earn.
All good things come to those who wait
“Life happens, and unforeseen events result in us sometimes having to dip into our savings, but I would encourage investors in this product to resist the temptation to withdraw from it to ensure disciplined, lucrative saving,” Tyson said.
In this way she said that investors should consider tax-free investment plans as complementary savings for your retirement investment.
As an example of why this money is best left alone for as long as possible, she provided the following example.
The table below demonstrates the sample values (including the tax savings relative to a normal investment plan) based on a monthly investment of R2,750 over a period of 2, 4, 6, 8 and 10 years, for an aggressive investor, and with intermediary fees of 0.50%.
The noteworthy point is that over a 10-year period, total contributions of R330,000 can grow to R536,048, which is R29,222 more than a similar plan without the tax savings.
*Table assumes return of 11% per annum and marginal tax rate of 35% on investment plan returns.
|Year||Tax-free savings plan||Investment plan||Tax savings||Cumulative contributions|
|2||R72 296||R71 951||R345||R66 000|
|4||R158 868||R157 308||R1560||R132 000|
|6||R262 534||R256 968||R5 566||R198 000|
|8||R386 714||R371 567||R15 146||R264 000|
|10||R536 048||R506 826||R29 222||R330 000|