All you need to know about a Tax Free Saving Account
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? Plus, what’s the catch?
The team at MoneyShop are consistently concerned with your financial well being, so we’ve compiled this post to educate you about these tax-free savings products and empower you to get the most bang for your buck.
What are 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 tax0free 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 enhance your financial well being (and boost your savings too).
How does it work?
You can save up to R35 000 per year in the tax-free savings account of your choice. However, during the lifespan of your savings efforts, 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 there a catch?
Ensure that you only save R35 000 per annum in your tax-free savings account, and no more. This is because there is a hefty 40% fine applicable to any amount that exceeds the above mentioned R35 000. In other words, if you were to save R40 000 in one year, you would have exceeded the tax-free threshold by R5 000. This R5000 is then subject to a 40% fine, which means that you’ll be fined R2000.
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’s true that spending wisely plays a huge role in keeping your finances healthy. So, too, does saving wisely. That’s why it’s 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.
Till next time