TFSA vs. RA for retirement?

[X-Gamer]

You can over contribute in a TFSA, over contributions will be taxed at 40%.

You can contribute more than 15% to RAs, but then its (the more than 15%) is just not something you can claim back on in your yearly tax return, no extra tax, the growth and income inside the RA is still untaxed. If you "over contribute" to the RA, the extra you put and the tax you could have claimed, gets deferred to the next tax year or till you retire and added to your tax free lump sum - if I understand what I have read up on it correctly.

I contribute 20%. 15% to work retirement fund and 5% to RA, I will probably up to 10% with the RA at some stage.

Saving 15% of your salary probably isn’t enough:
http://www.moneyweb.co.za/investing/saving-15-of-your-salary-probably-isnt-enough/

Aah, okay. I just checked my Momentum pension fund letter and my contribution is 7.5% while my employer contributes 11.53%. So that's already above the 15% limit then. With my monthly flexible investment and my TFSA (which I will top-up before FYE) I think its good enough at this stage.

 

[Hamster]

For those who can afford to max out there RA and then TFSA brilliant.

If not, max out your RA first then use the tax refund from the RA and medical aid credits to max out TFSA.

This actually puts it into perspective to some extent.

 

[krycor]

If I lived in a more politically stable part of the world, I would have no qualms maxing out every tax incentive. I think SA investors should try to invest 25-40% of their net worth out of this govmt's reach - just a bit of insurance against the unthinkable, which unfortunately became a reality for our northern neighbour.

The increase to 27.5% will be very useful for those who start saving later in life, and need to catch up.

Yip, as soon as its allowed, i'd up the ante.. for now tho TFSA helps if you still have 20-30yr before retirement as the gains after 20-30yrs will be huge hopefully. Doing the FNB one for local exposure and EE for international (because FNB doesnt allow you to choose)

 

[Goliath]

Can be quite low (1% or less), Sygnias index funds for example, 0.4%. Not as low as an EasyEquities might be able to go, but decent.

I've looked at Sygnia's and although their the cheapest, they're (relatively) a new kid on the block and will they be there 20+ years down the line? (thinking of Fidentia here) Hence why I decided to rather go with Coronation (Allan Gray also on the table) for my RA.

Edit: I'd rather pay a little extra for Coronation/Allan Gray (Coronation 1.25%) and their performance is 16%+ over 20 years pa (Balanced Plus Fund) as where you pay Sygnia's 0.4% but you only get 12%+ for instance.. not that I'm badmouthing Sygnia but just using an example, could be wrong of course but is just what I was thinking and doing regarding a RA..

 

[mintydroid]

I've looked at Sygnia's and although their the cheapest, they're (relatively) a new kid on the block and will they be there 20+ years down the line (thinking of Fidentia here), hence why I decided to rather go with Coronation (Allan Gray also on the table) for my RA

Best to check and let us know here. Its better than paying school fees later.

 

[patrick]

RA first, TFSA second, other investments third.

If you have no TFSA but you're putting money into Satrix or Allan gray etc, stop that until you reach the R30k per year.

If you're earning R300k a year you should put 15% into a good RA and another 10% into a TFSA. That alone should be enough for you to retire on happily after 33 years without downgrading your lifestyle at all.

If they raise the limit to 27.5% I'd make that my goal, and do the TFSA. If you're making R300k then it would be 37.5% of your salary, and you'd only need to work for 24 years of your life.

Links for the above numbers http://investorchallenge.co.za/lets-all-be-guilty-of-tax-avoidance/ and http://investorchallenge.co.za/the-only-way-to-get-rich/

 

[Verde]

Personally I believe that not being reg 28 compliant will also allow for higher returns. Which should make it more favourable then the calculations above.

Some food for thought for all those stock bulls, especially the ones who only invest in JSE listed shares, and even more especially for those who only invest in industrials.

Longest consecutive period during which stock market returns was negative in real terms for various countries.

 

[MikyMouse]

then use the tax refund from the RA and medical aid credits to max out TFSA.

only after the RA is maxed out? i.e. if you haven't been able to max out the RA though out the year, use some of the rebates to max that out before looking at a TFSA?

 

[tuyler]

Depending on what tax bracket you on I guess. If your tax bracket is 30% and you put R30k in TFSA and not RA, then you basically giving away R9k to tax man.

 

[MikyMouse]

Depending on what tax bracket you on I guess. If your tax bracket is 30% and you put R30k in TFSA and not RA, then you basically giving away R9k to tax man.

Ya atm I am in the 26% tax bracket so - RA 1st and then TFSA for me!