What you need to know about Tax Free Investments

It is a common misconception that the Tax free savings we have been hearing about are bank savings accounts and that the interest earned on these accounts is tax free. This is true for these special savings accounts but is by no means the only way to take advantage of the tax free savings incentive offered. Below are other investment/savings opportunities that also attract the same tax free incentives.

Local Tax Free Investment options

Off Shore Tax Free Investment options

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Special savings account at a bank

All of South Africa’s banks offer a tax free savings account that you as are able to take advantage of. Simply contact your bank and open a tax free savings account and you will automatically start saving. The interest offered by banks is low and hence a very low risk. In most cases the capital would be guaranteed and unless the bank went under you would not be at risk in any way whatsoever.

Unit Trust Investments

A Tax Free unit trust investment is a little more risky in that the funds are invested in the local and off-shore unit trusts. A unit trust is a pooling of resources which are collectively invested for the benefit of all members. (It can be compared to a stokvel wihere the money is invested and a manager charges a fee) The growth in the units is what becomes part of your tax free savings allowance.

Pension fund or RA

A pension fund or RA has traditionally been the best way to make tax savings, where an individual is able to invest as much as 27.5% of their taxable in a pension fund or RA. Some people prefer this option as the funds are untouchable until retirement age or maturation and cannot be attached in the event of bankruptcy or insolvency. Tax free savings in the Tax free savings incentive are accessible at any time and are not protected under law against creditors.

Tax free ETF products

ETF tax free savings accounts are special purpose savings accounts which offer the ability to invest in exchange traded funds (ETF’s). These TFSA’s offer tax free grwoth and income that is earned on the investment subject to certain maximums. ETF’s generally track stock market indexes or commodity indexes but of course there are variations to the typical ETF. ETF’s are also a riskier investment than saving due to stock market exposure.

The Tax Free Savings Incentive

Taking advantage of the Tax free savings offered can make a significant difference to your savings and retirement investments. There are many examples showing savings of as much as R500 000 in terms of investment value in a R2.5 million investment and we are not going to lay them out here for you.

What you need to do is maximise the savings by investing in Tax free savings products that are right for your personal lifestyle and savings objectives. Our experienced investment and tax advisors will prepare a no obligation strategy for you to take advantage of the tax free savings being offered.

In the end, it is always a good idea to have a diversified portfolio of investments to cater for your retirement and savings needs and to take advantage of any tax free incentives available to you. It is the selection of the tax free investment vehicle that you need to be advised about. Each of us has different goals and strategies for our future and the future of our families and for this reason it is best to consult a professional Tax free investment advisor. The advisor will analyze your current savings and retirement investments, discuss your future savings and retirement goals and advise the best way to take advantage of these Tax free savings opportunities.

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