Page 32 - Waterfall City Issue 3 March 2023

Waterfall City News

The benefits of investing on behalf of children:
WHAT ARE THE

BEST OPTIONS?

By Robyn Laubscher, advice and product specialist, PSG Wealth

W e have all heard the you can however continue to make

phrase: “It’s not about
contributions to another savings
timing the market, but
vehicle like a voluntary investment.
time in the market.” One
of the most important lessons parents Retirement annuities (RAs)
can teach their children is the value of The power of compound interest
money – how to really understand the and growth helps to ensure that you
dynamics around investing and how can make a meaningful contribution
to make money work for them. This to a minor child’s financial freedom
helps children learn about financial when they reach retirement age. For
freedom from a young age so that example, as a parent, you can make
they can spend their precious time contributions to a retirement annuity
doing what they like and need, rather in their name. There is no tax deduction
than doing things to earn money. that you can make use of in such
a scenario, but one of the benefits
This is no easy task, as we live in a Robyn Laubscher of investing into an RA is that it
society where everything seems encourages parents (and their children)
to have a price and is instant and to maintain a savings discipline.
disposable, and where money is not
necessarily valued. than one TFSA) – the annual limit Once your child starts to earn their
that an individual can contribute to own income and can take over the
There are two popular investment TFSAs per tax year is R36 000. There contributions, the normal retirement
vehicles to help you save for your is also a lifetime contribution limit of fund rules will apply in terms of the
children’s future: tax-free savings R500 000 per person. Once you reach deductibility of contributions and
accounts (TFSAs) and retirement the maximum contributions allowed, access to retirement funds.
annuities (RAs).
Retirement Tax-free
As you can see from the table on the annuity savings
right, the two products have different account
benefits and are therefore suited to Is tax payable within the portfolio? x x
achieving different goals. Are contributions tax deductible? P x
Do investors have access to funds at any time? x P
Tax-free savings accounts Does the investment need to comply with
(TFSAs) Regulation 28 of the Pension Funds Act? P x
You can contribute to a TFSA on a Are there limited underlying investment options? x P
monthly basis and also make ad hoc Are contributions limited over the product lifetime? x P
payments from time to time. The Is the product subject to 37C of the Pension Funds
flexibility this offers means that this Act? P x
product is often used as a savings Can beneficiaries be nominated? P x
vehicle to contribute towards a child’s Is the product subject to estate duty on death of
tertiary education. However, you need the investor? x* P
to be aware – although any person Is the product subject to executor’s fees on death
(including minor children) can invest of the investor? x* P
in this product (and even have more * Provided a beneficiary has been nominated

30 Waterfall City Issue 3 2023