When it comes to personal finance, there is no one-size-fits-all.
Individuals have unique financial goals, needs and various ways of ensuring that they save enough for the future.
PSG Wealth head of technical support Mariska Comins says building wealth involves a combination of strategic financial planning, personal discipline and maintaining a long-term perspective.
“Unlike chasing short-term gains or quick returns, building wealth is a process that takes many years and requires consistent action. By way of an analogy, it’s a marathon rather than a sprint. Part of planning for a successful financial future involves tax-efficient choices and for many investors, that starts with opening a tax-free savings account [TFSA].”
Comins says investors can make contributions up to R36,000 per tax year, with a lifetime limit of R500,000.
“The unused portion of annual allowance, currently R36,000, will not roll over to the subsequent year. Any growth on the investment is tax exempt, meaning that in the long term, the accumulated value of a TFSA typically outstrips that of a taxed investment product (assuming it is invested in similar underlying funds) – often by a wide margin. This is particularly true of growth on tax-free investments over the longer term, i.e. for a period of seven years or more.
“At the end of the investment period, the tax-free lump sum can be used to supplement a retirement fund. purchase an asset or settle an interest-bearing liability. Many investors choose to use a TFSA as a way of saving for their children’s tertiary education – a longer time horizon provides a reasonable amount of time to grow returns for this purpose, tax free.”
Comins says parents can also take out TFSAs in their children’s names.
“Bear in mind that the child will use his/her own annual or lifetime limits. Ultimately, given that these funds can cover the cost of further education or setting a young adult up for a successful start in life, many parents consider it a reinvestment into generational prosperity.”
Comins says there are advantages of TFSAs and one of them is the level of flexibility it offers.
“Withdrawals can be made at any time and any contributions can be started or stopped without incurring any penalties. Although TFSAs are best viewed as longer-term investments, they also offer the ability to request withdrawals as and when required. Thus, they can be used to provide an additional source of income in retirement. Bear in mind that withdrawals do not increase the respective contribution limits.
“TFSAs therefore have a real-time adaptability factor that makes them a great addition to most investor portfolios. As is the case with other investments, consulting an adviser can go a long way in helping individuals find what works for them. Advisers are best equipped to offer advice and guidance on how to bring a TFSA into the investment mix as a capital booster and financial solution to meeting different goals.”
mashabas@sowetan.co.za
Tax-free savings account a great addition to portfolios
Building wealth a process that takes many years
Image: 123RF
When it comes to personal finance, there is no one-size-fits-all.
Individuals have unique financial goals, needs and various ways of ensuring that they save enough for the future.
PSG Wealth head of technical support Mariska Comins says building wealth involves a combination of strategic financial planning, personal discipline and maintaining a long-term perspective.
“Unlike chasing short-term gains or quick returns, building wealth is a process that takes many years and requires consistent action. By way of an analogy, it’s a marathon rather than a sprint. Part of planning for a successful financial future involves tax-efficient choices and for many investors, that starts with opening a tax-free savings account [TFSA].”
Comins says investors can make contributions up to R36,000 per tax year, with a lifetime limit of R500,000.
“The unused portion of annual allowance, currently R36,000, will not roll over to the subsequent year. Any growth on the investment is tax exempt, meaning that in the long term, the accumulated value of a TFSA typically outstrips that of a taxed investment product (assuming it is invested in similar underlying funds) – often by a wide margin. This is particularly true of growth on tax-free investments over the longer term, i.e. for a period of seven years or more.
“At the end of the investment period, the tax-free lump sum can be used to supplement a retirement fund. purchase an asset or settle an interest-bearing liability. Many investors choose to use a TFSA as a way of saving for their children’s tertiary education – a longer time horizon provides a reasonable amount of time to grow returns for this purpose, tax free.”
Comins says parents can also take out TFSAs in their children’s names.
“Bear in mind that the child will use his/her own annual or lifetime limits. Ultimately, given that these funds can cover the cost of further education or setting a young adult up for a successful start in life, many parents consider it a reinvestment into generational prosperity.”
Comins says there are advantages of TFSAs and one of them is the level of flexibility it offers.
“Withdrawals can be made at any time and any contributions can be started or stopped without incurring any penalties. Although TFSAs are best viewed as longer-term investments, they also offer the ability to request withdrawals as and when required. Thus, they can be used to provide an additional source of income in retirement. Bear in mind that withdrawals do not increase the respective contribution limits.
“TFSAs therefore have a real-time adaptability factor that makes them a great addition to most investor portfolios. As is the case with other investments, consulting an adviser can go a long way in helping individuals find what works for them. Advisers are best equipped to offer advice and guidance on how to bring a TFSA into the investment mix as a capital booster and financial solution to meeting different goals.”
mashabas@sowetan.co.za
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