Why tax free?

Created to encourage South Africans to save, a tax free savings account (TFSA) is the first ever investment you should get because you don't have to pay any tax on your investment while you are invested or when it is paid out. 

How does it work?

You can contribute up to R36 000 tax free every year (1 March to the end of February the next year) and up to R500 000 over your lifetime. Keep track of your contributions as you'll pay a 40% tax penalty on any additional amounts invested over these limits.

Can I take out my money? 

You are able to withdraw money from your TFSA, however, the withdrawals count against your limits. 

Say you contribute R5 000 to your TFSA and you withdraw R3 000. You’re still only able to contribute R31 000 more in that tax year and R495 000 more over your lifetime. 

Can I change my provider ?

You can move your TFSA between different financial service providers without affecting your contribution limits. You will have to request transfer forms from your respective providers in order to make this happen. 

That said, we do recommend picking the provider and investment type that is best suited to you from the start since some providers charge for transferring TFSAs and it can take quite long to start the transfer process as it is depends on your provider's customer service quality.

What are my options? 

Your TFSA can be invested in cash, equities, collective investment schemes. 

Cash 

Investing in fixed deposits. Ideal for investors who want low risk investments where capital and returns are guaranteed back but with low capital growth. 

Equities 

Investing in shares in listed companies. Ideal for investors who want high risk investments where capital and returns are not guaranteed back but with higher capital growth potential.  

Collective Investment Schemes 

Investing in unit trusts or exchange traded funds (ETFs) where your money is pooled with other investors to buy a range of asset classes (cash, bonds, shares etc.). Ideal for investors who want to diversify their risk through different asset classes. 

How can I get the most out of my TFSA?

Save for longer

Your TFSA should be used as a long term savings vehicle and ideally, held for as long as possible to maximise your tax benefit. Your TFSA should not be used for emergencies or alike. 

Meet your limits

If possible, you should try to meet your R36 000 yearly contribution limit. This way your investment has more time to grow. 

Say you have multiple investments including a TFSA whose yearly contribution limit you are not meeting. Take any amounts you pay to your non-TFSA investments and pay them into your TFSA instead. You can even go as far as withdrawing from your non-TFSA  investments to meet your limit. 

Know your fees

Whatever investment option you select aim to pay the lowest fees possible as fees eat away your returns over time. 

Resist investing cash

Ideally, TFSAs are better suited to investments that deliver higher returns over time. A TFSA invested in cash won't see much capital growth over time as the only return you receive is interest. 

Also, unless you have a large lump sum (almost your entire lifetime limit) invested, you won't hit your yearly interest exemption - the first R23 800 interest you earn is not taxed. Essentially, the returns received from your cash TFSA wouldn't have been taxed anyways had they been in a non-TFSA investment. 

IN THIS ARTICLE: Investing | Tax Free | TFSA