Goodbye taxes, Hello Trive Tax-Free Savings Account

A Tax-Free Savings Account (TFSA) is a savings and investment account that allows South Africans to earn interest, dividends, and capital gains tax-free. It is a registered account that is offered by financial institutions in South Africa and is designed to help South Africans save for their financial goals.

When you contribute money to a TFSA, you use after-tax money, meaning you don't get a tax deduction for your contributions like you would with a retirement annuity (RA). However, the key benefit of a TFSA is that any investment income earned within the account is not subject to tax, and you can withdraw the funds at any time without incurring any tax consequences.

As of the 2022 tax year in South Africa, the contribution limit for Tax-Free Savings Accounts (TFSAs) is R36,000 per year and R500,000 per lifetime. This means that you can contribute up to R36,000 per year to your TFSA, and any investment income earned within the account is tax-free. Any contributions over this limit will be subject to a penalty tax of 40%. Additionally, any unused contribution room from previous years can be carried forward, so you can contribute more than R36,000 if you haven't maxed out your contribution room in previous years.

The South African government allows a variety of investment options within a Tax-Free Savings Account (TFSA). The allowed investment options include:

• Unit trusts: These are investment funds that pool money from many investors to purchase a diversified portfolio of assets. Unit Trusts are managed by dedicated Fund Manager.
• Exchange-traded funds (ETFs): These are investment funds that trade on a stock exchange and are designed to track the performance of a specific index, such as the JSE Top 40 Index.
• Money market instruments: These are short-term, low-risk investments that include Treasury bills, certificates of deposit, and commercial paper.
• Bank deposits: This includes savings accounts, fixed deposits, and other bank-based investment options.
• Retail savings bonds: These are government-issued bonds that pay a fixed rate of interest and have a set term.

Withdrawals from a South African tax-free savings account are not subject to taxation. This is because the contributions made to the account have already been taxed and are not tax-deductible. Therefore, any interest, dividends or capital gains earned within the account are also tax-free. As long as the withdrawals are made in accordance with the regulations set out by the South African Revenue Service (SARS), no tax will be payable on the funds withdrawn. It is important to note, however, that there are annual and lifetime contribution limits to these accounts, and exceeding them can result in penalties.

Yes, there are penalties for over-contributing to a Tax-Free Savings Account (TFSA) in South Africa. The South African Revenue Service (SARS) imposes a penalty of 40% on any contributions made in excess of the annual contribution limit. It is important to keep track of your contributions to your TFSA to avoid over-contributing and incurring penalties.

Yes, in most cases, individuals can have more than one TFSA. However, the total contributions to all accounts must not exceed the lifetime limit set by the government.

Yes, in most cases, individuals can transfer money from one TFSA to another without penalty. However, it is important to follow the proper transfer procedures to avoid any tax implications.

Yes, you can open a tax-free savings account (TFSA) for your child in South Africa if they are younger than 18 years old. However, there are some conditions that you should be aware of:

• You, as the parent or legal guardian, will need to open the account on behalf of your child.
• The annual contribution limit for a tax-free savings account is currently R36,000 per year. This means that you can contribute up to this amount to your child's account each year without incurring any tax.
• The account will be in your child's name, but you will have control over the account until they turn 18 years old.
• Any interest or other returns earned on the account will be tax-free.

It's important to note that once your child turns 18 years old, they will have full control over the account and will be able to make withdrawals or contributions as they wish. Also, keep in mind that tax laws and regulations may change, so it's always a good idea to stay up-to-date on any updates or changes to the tax-free savings account rules.