5 Things You Need to Know About Tax Free Savings
So you’ve heard the adverts on the radio, but is it true? Can you really save money and then withdraw it tax free? Are you eligible? If you are, how do you grab this opportunity? And, where’s the catch?
The team at MoneyShop are consistently concerned with your financial wellbeing, so we have compiled this post – to educate you about the tax free savings products and empower you to get the most bang for your buck(s). Below are five important things you need to know about tax free savings.
What is tax free savings?
Tax free savings refer to the saving of money without any tax being payable on the interest, profit or capital gains that the investment produces. As a result of the South African Government’s push for legislation that offers tax free savings products to every citizen, financial institutions across the country now offer a variety of tax free saving accounts or products which you can leverage to help you grow your financial wellbeing (and boost your savings too).
How does it work?
You can save up to R30 000 per year in the tax free savings account of your choice. However, during the lifespan of your savings endeavours, you may not save more than R500 000 in this particular account. Under this initiative, none of the interest, monetary gains and/or dividends that your savings produce will be subject to tax – which means that you save even more.
Is it for real?
It’s often said that when something sounds too good to be true, it probably is. And while there is great wisdom in this old adage, it does not hold much water when it comes to the tax free savings legislation. Regardless of this, it is vital that you read the terms and conditions of the tax free savings product that you want to invest in. Remember that just because it’s tax free doesn’t mean it’s cost free.
What’s the catch?
Ensure that you only save R30 000 per annum in your tax free savings account, and no more. This is due to the fact that there is a hefty 40% fine applicable to any amount that exceeds the above mentioned R30 000. In other words, if you were to save R40 000 in one year, you would have exceeded the tax-free threshold by R10 000. This R10 000 is then subject to a 40% fine, which means that you will be fined R4 000.
You have options…
If you shop around, you’ll find that the various financial institutions offer differing tax free savings products. Each has its own specified minimum monthly deposit, investment costs, withdrawal terms and conditions for transfer.
It is true that spending wisely plays an integral role in keeping your finances healthy. So, too, does saving wisely… That is why it is beneficial to investigate the various savings and investment-related products and tools available to you. Leveraging these products and tools effectively will help you reach your financial goals.