Page 32 - Waterfall City Issue 10 October 2024

Waterfall City Finance

flexible. For example, TFIs can invest
100% in equities, while RAs have a 75%
limit. If you make the correct use of the
TFI’s increased asset class flexibility,
there is the potential that this could lead
to higher returns over the long-term.

After establishing your reserve for those
important life events, deciding whether
to opt for an RA or a TFI first will depend
entirely on your unique circumstances.
One consideration is your tax bracket
(RAs provide more relief). It will also
depend on when and how frequently
with the flexibility they will likely anytime. However, keep in mind that you will need access to your investments
require as their needs change. When there is a lifetime limit of R500,000 (TFIs provide more flexibility), what
considering what products to invest in, that you can contribute to TFIs. If you asset classes you want to invest in (TFIs
the tips below can serve as a yardstick withdraw funds from this product generally offer more flexibility), and
for young investors. and reinvest them later, this will whether you will need protection against
count as an additional contribution potential future claims from creditors
Establish a reserve that can towards the lifetime limit. Not only (which RAs provide).
cater to the critical next can you not simply recontribute
stages of your life withdrawn amounts but as a result Your unique needs and circumstances
Discretionary investments, like the PSG of this, withdrawals from a TFI can will also determine how much you
Wealth Voluntary Investment Plan, can also negatively affect the benefits of should contribute to your RA and how
be a great option for young investors as compound interest on your TFI in the much you should contribute to your TFI.
they offer significant flexibility, including future. Regarding withdrawals from The fact that these will differ from one
accessing investment savings when RAs, introducing the two-pot retirement person to the next is but one reason why
required. This type of investment is also reforms means that from 1 September it is advisable to consider speaking to
useful if you have a specific savings goal 2024, members of retirement annuity a skilled financial adviser who can help
in mind, for example, when saving for a funds will be able to withdraw one-third determine your needs so that you can
deposit on a car or your first home. of their RA contributions each tax year. make sound decisions on product and
• Turning to the asset classes, you can asset class choices to give you the best
Retirement annuities and tax- choose to invest in each of these chance of reaching your financial goals
free investments products, TFIs are generally more and objectives.
Once you have established such a
reserve, retirement annuities (RAs) and
tax-free investments (TFIs) can be a
formidable combination to consider
adding to your investment portfolio.
While there are scenarios where you
can benefit from investing in one of
these products and not the other, the
combination can be powerful because of
unique benefits, and investing in an RA
and a TFI can offer you the best of both
worlds.
• While the returns within both RAs and
TFIs don’t attract tax, an RA provides
additional benefits because the
contribution to an RA reduces your
taxable income and ultimate tax liability.
• Funds invested in a TFI are more
accessible if needed, as these products
allow you to withdraw your funds

30 Waterfall City Issue 10 2024