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Boost Your Retirement Savings, Tax Free

Boost your retirement savings, tax free

Only 6% of South Africans retire comfortably and are able to maintain their standard of living. Make use of a TFSA for retirement to reduce tax payable on your investment.

People’s retirement needs vary greatly, but everyone will need to cover their basic living expenses. To pay for life’s expenses during your retirement – and maybe have some fun along the way – you need to set money aside now, and allow that money to grow, so that you have sufficient income in your twilight years.

TFSA for retirement

When to consider supplementing your retirement plan with a Tax-free Savings Account (TFSA):

  • If you are below the age of 65 and earn less than R75 750 per year then your income is below the income tax threshold. You do not pay tax and will therefore not enjoy any personal income tax relief from contributions made to your retirement funds.
  • If you’ve topped up your retirement savings to more than R350 000 per annum, you’ll begin to pay tax on any more contributions. A TFSA will allow you to supplement your retirement annuity (RA) with R500 000 tax free in your lifetime.
  • Contributing more than the deductible limits to your RA will cause you to lose savings to tax. If instead you invest the extra contributions into a TFSA, you could save on tax and contribute to your retirement savings fund.

The benefits of a Tax-Free Savings account

With a TFSA, your investment will be tax free – you will not be taxed on interest, dividends or capital gains. As these savings grow over time, you can also look forward to significantly greater returns.

With a TFSA you can invest up to R33 000 per financial year (maximum R500 000 over a lifetime) into a range of asset classes. Should you invest the full R33 000 allowance each year, you would reach the maximum contribution rate of R500 000 within 14 years, but there is no limit on how much interest you can earn with that account.

You can choose to invest in anything from a no-risk bank account to low-risk assets or high-risk equity portfolios, depending on whether your investment appetite is aggressive, balanced, moderate or conservative.

You don’t have to commit to a specific investment amount or term, and there’s no limit to how much your investment can grow. But the real value of a TFSA is that you have access to your funds at any time, tax free, and that the amount you withdraw won’t increase your taxable income.

Retirement annuity instruments

Your TFSA isn’t enough for you to retire on, so you will need other ways to grow your retirement fund. There are additional investment instruments to enable this, but these will be subject to tax:

Funds Entry: Contribution During: Investment Term Exit: Withdrawal / Termination
Retirement Deducted from taxable income Not taxed Subject to retirement tax
Discretionary Savings After-tax proceeds Interest and dividends are subject to tax Subject to capital gains tax
TFSA After-tax proceeds Not taxed Not taxed

Get expert advice

Decisions around your long-term financial security should not be taken lightly – if you’re ever in doubt, speak to a professional financial planner.

Next step

Visit our Tax-Free Call Account page to apply and for more information, or head to the retirement section of the Community to speak to other customers or bank consultants.