Page 32 - Waterfall City Issue 3 March 2023
P. 32

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
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