Page 27 - Waterfall_Issue 2_Feb_2022

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“Tax-Free Savings Accounts provide
given tax year, and excess contributions unique rules around tax treatment,
can be claimed as deductions in which can be leveraged to supplement
the following year of assessment.
retirement savings.”
By contrast, TFSAs have a maximum
contribution limit of R36 000 per tax the lump-sum portion will be taxed approach also significantly simplifies
year and R500 000 over the lifetime according to the retirement lump sum the offshore investment process,
of the product, and contributions tax tables or the withdrawal lump and you don’t need to use your own
exceeding these limits are penalised at sum tax tables (depending on the offshore investment allowance.
a 40% tax rate. Annual contributions event). Income from the retirement
are not tax-deductible and do not income product will be taxed at additional product
carry over to subsequent tax years, so differences
it’s important to use as much of each your marginal income tax rate. There are a few notable differences
year’s TFSA allowance as possible.
TFSA savings can be accessed anytime, to consider when selecting an
and there is no tax payable on the appropriate product. These are
Contributions to both products can
be made as a lump sum, monthly amount withdrawn. There is no limit indicated in the table below.
or on an ad hoc basis, but the exact on the amount you can draw, but
payment arrangements vary between you cannot replace the withdrawn TFSA RA
product providers. For example, the amounts, as TFSA contribution limits Does the investment Yes No
RA and TFSA offered by PSG (the PSG apply regardless of withdrawals. form part of my
Wealth Retirement Annuity and PSG deceased estate? Yes* No
Are executor’s
Wealth Tax-Free Investment Plan) have Investment choices fees* payable?
minimum lump-sum contribution RAs are subject to certain restrictions on Is the investment No Yes
amounts of R20 000 and R6 000 asset classes prescribed by Regulation protected from creditors?
respectively, and the minimum debit 28 of the Pension Funds Act. Broadly * Executor’s fees do not apply to TFSAs issued
order amounts for both products speaking, these limits are 75% equity, by life insurance companies.
are R500 a month, R1 500 a quarter, 30% offshore assets and 25% property.
R3 000 half-yearly and R6 000 yearly. These limitations do not apply to TFSAs, In conclusion
so a significant benefit of TFSAs is that TFSAs are the ideal vehicles to
accessing your savings they allow investors an opportunity supplement retirement savings, as
RA savings can generally only be to achieve almost 100% offshore they provide additional flexibility and
accessed at retirement, at which investment exposure – for example, diversification. However, finding the
stage a maximum of one-third of the by investing in a unit trust feeder fund. right balance between an RA and
withdrawal amount can be taken as These funds – denominated in Rands a TFSA may not always be a simple
a lump sum, and the remainder must but mostly invested in foreign currency task. Therefore, it is important that
be invested in a retirement income funds – are available through local you engage with a financial adviser
product. On withdrawal from an RA, product providers like PSG Wealth. This to support you through this process.

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