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Helping you save more efficiently
This savings vehicle allows you to save up to R36 000 a year tax free, making this an ideal investment opportunity.
The Tax-free Flexible Investment Plan from Discovery Invest is built on a low-cost platform which gives you access to a wide range of Discovery Funds, global funds and external funds. With this investment you have full flexibility and access to your money at any time.
Tax payers receive an annual donations tax exemption of R100 000 which often goes untapped. In a household where there is two parents, each parent has this annual allowance to their disposal that means that they are able to decrease their estate value each year by R200 000 by making donations and utilizing the donations tax exemption.
It is a common estate planning mechanism for donors of a family trust to utilise their annual exemption and reduce their estate over their lifetime, by donating R100 000 per annum to the trust. Initially this might not seem significant, but over a term of 20 years each individual would have been able to reduce their estate by R2 million and when including the growth on the asset it is substantially more.
Often a trust structure however is unnecessary or just not cost effective and the opportunity to reduce one’s estate is unexploited.
The opportunity lies within the fact that now, with the tax-free savings plan, parents and grandparents are able to utilise their exemption to save for children and grandchildren tax-free.
Children’s Education/ Future Funding Plan
Imagine you received R1 million from your parents when you turned 21. What doors would this have opened for you?
With the tax free savings plan you can create a future fund for your child tax-free and cost effective. By starting early you could build up the maximum contributions allowed (R3 000 per month or R36 000 per annum) over the first 16 years of your child’s life. This fund can then with the power of compounding interest not only on your capital invested but also on the portion of tax you save grow to a substantial amount and make you the proud parent that makes your child’s dreams come true. University costs; overseas studies; buying a property; building a business is only some of the endless new beginnings you can aid in your child’s future.
This is also an excellent method of reducing your estate duty liabilities by donating to your children through a tax free savings plan each year and finally making use of your annual R100 000 donations tax rebate. Instead of making cash bequeaths to your dependents through your will/ testament where it will attract estate duty as well as executor fees, you can now make these bequeaths prior to death by using a tax free savings vehicle for each of your dependents.
Cash-in and Lock-in
For those fortunate enough to have made return on investment over the last few years, one can cash-in and lock-in return by realizing a portion and reinvesting it in a tax-free savings plan.
By cashing in R30 000 per annum on your current investments, you don’t only allow yourself the opportunity to utilize a portion of your annual capital gains tax rebate (R30 000 per annum) but you insure that you lock-in the growth on investment for that year.
Complimentary investment for pre/post-retirement
A TFSA can also be a complementary investment product to use in a holistic investment plan. One can use it to save alongside your RA, and then supplement your income in retirement; which will subsidise a portion of taxable income withdrawals from the RA with a non-taxable income stream. This will then inevitably reduce overall tax on income withdrawals in retirement.
Another use for the TFSA is for those low income withdrawals on linked annuities; aka the 2.5% income withdrawals. Because the TFSA is also not taxed within the wrapper– you can use it to save unneeded income withdrawn from the RA into a TFSA making provision for rainy days (emergency fund). This can then supplement income at later stage as well.
Dividend Withholding Tax
Dividend Withholding Tax (“DWT”) is the one tax triggered that no-one, not even minors can avoid when investing. Other than retirement investment vehicles, the tax free savings plan is the only investment wrapper where everyone saves on DWT.
It is for this reason as well as the long term investment horizon of the tax free savings plans, we encourage investors to make use of funds with equity allocation as well as property funds that distributes substantial dividend return.