TFSA: Why does it exist?

[PPLdude]

Yo guys,

I am very uneducated when it comes to, well in short, investments and anything involving tax.

I pay tax as PAYE, so what is the point of a TFSA? Is a TFSA just a normal savings account?

Am I taxed on my savings? Also can I withdraw it if I want to leave the country without getting penalties?

If you could point me to any local resources on anything financial, it would be much appreciated.

I am very nervous when it comes to having my money tied up, as I may want to GTFO within the next 5 years.

 

[Scooby_Doo]

TSFA,

You can put in up to R33k per year and a life time limit of R500k. If you put more in than those limits you get taxed 40% on the additional amounts. The monies within the TSFA can be invested in ETFs, bonds or interest earning accounts, you can also trade within the account without any limits.

There is no tax incurred on any of the gains made in the TSFA.

You are free to take money out of the account at any point without restriction, but if you do and wish to put it back that action will add to your annual R33k and R500k limits.

 

[Zukat]

Scooby_Doo is correct apart from the name, it is indeed TFSA.

The purpose of the initiative is to encourage South Africans to invest and save, as the current rate of savings is very poor.

 

[Swa]

Yes in simple terms you don't pay any tax on proceeds from the account. TFSAs only really make sense for large fixed deposits as you can't put back money you withdraw from them without it being subject to the limits. Current interest rebate is R23,800 for under 65 and R34,500 for over 65. That works out to 4.76% or 6.9% interest p.a. on a R500,000 deposit so if you get less than that rather keep it in a regular account.

You also get TFAs and TFTAs where you can invest in ETFs.

 

[Scooby_Doo]

Scooby_Doo is correct apart from the name, it is indeed TFSA.

The purpose of the initiative is to encourage South Africans to invest and save, as the current rate of savings is very poor.

maaaay bad.

 

[supersunbird]

Yo guys,

I am very uneducated when it comes to, well in short, investments and anything involving tax.

I pay tax as PAYE, so what is the point of a TFSA? Is a TFSA just a normal savings account?

Am I taxed on my savings? Also can I withdraw it if I want to leave the country without getting penalties?

If you could point me to any local resources on anything financial, it would be much appreciated.

I am very nervous when it comes to having my money tied up, as I may want to GTFO within the next 5 years.

It's point is to encourage saving and investing.

A TFSA can indeed be a normal savings account in a TFSA product, but one can also invest in unit trusts and ETFs and other products in a TFSA product.

One is taxed on ones interest earned in the year, but one has to earn over R23 500 in interest per year, not a worry for most people.

You can withdraw it anytime (the only "penalty" is that one can not recontribute what one has withdrawn against the R500 000 lifetime limit)

 

[Mista_Mobsta]

Scooby_Doo is correct apart from the name, it is indeed TFSA.

The purpose of the initiative is to encourage South Africans to invest and save, as the current rate of savings is very poor.

Current rate of savings would be much better if our cost of living (transport/fuel/water/elec/safety/food) would decline as % of net income.

 

[Scooby_Doo]

TFSA are a great product to build generational wealth.

If you have a kid and start saving into their TFSA (and buying into a high equity ETF) it will take 16 years to max out the life time limit. If you did that, the kid will pretty much be set for life and would not need to think too much about retirement savings (assuming they don't touch the money in the account until 65), freeing them up to do the same for their children.