TFSA vs. RA for retirement?

Hamster

Hamster

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So, which one would be better to max out first every year?
 
HavocXphere said:
RA because its deductible immediately.
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Well your earnings inside the TFSA is tax free immediately too which means you can reinvest it even quicker. Won't the avg. earnings inside a TFSA with something like STXIND/RAFIND outperform the growth of an RA?
 
Hamster said:
Well your earnings inside the TFSA is tax free immediately too which means you can reinvest it even quicker. Won't the avg. earnings inside a TFSA with something like STXIND/RAFIND outperform the growth of an RA?
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Also think this.
 
Definitely RA.

You start the TFSA with up to 41% less than the RA so the returns on the TFSA would have to be monumentally more than on the RA just to break even.

e.g. you put R100 into an RA with a 5% return and you have R105 at the end of the year.
Equivalently (worst case), you put R59 (R100 - 41% income tax) into a TFSA, you need a 78% return to be in the same position as the RA at the end of the year...
 
Jehosefat said:
Definitely RA.

You start the TFSA with up to 41% less than the RA so the returns on the TFSA would have to be monumentally more than on the RA just to break even.

e.g. you put R100 into an RA with a 5% return and you have R105 at the end of the year.
Equivalently (worst case), you put R59 (R100 - 41% income tax) into a TFSA, you need a 78% return to be in the same position as the RA at the end of the year...
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Sorry for my noobness where does the 41% come on on a TF account?
 
Its after tax income that you put into a TFSA so that would be the worst case of 41% income tax. Whereas any contributions to a RA (up to a point) are made prior to calculation and payment of income tax.
 
Jehosefat said:
Its after tax income that you put into a TFSA so that would be the worst case of 41% income tax. Whereas any contributions to a RA (up to a point) are made prior to calculation and payment of income tax.
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Won't you be charged 41% tax (if nothing changes) when you eventually start using the money in the RA?
 
As far as I know you only get taxed on the income that you take out of your RA and you don't pay tax on any capital gains in your RA over its life. Although I could be wrong on this point.
 
Diversify, do both and more. You will probably max out your Tfsa before retirement anyway
 
Jehosefat said:
Definitely RA.

You start the TFSA with up to 41% less than the RA so the returns on the TFSA would have to be monumentally more than on the RA just to break even.

e.g. you put R100 into an RA with a 5% return and you have R105 at the end of the year.
Equivalently (worst case), you put R59 (R100 - 41% income tax) into a TFSA, you need a 78% return to be in the same position as the RA at the end of the year...
Click to expand...

And fees? What fees do you pay for the RA?
 
Hamster said:
Well your earnings inside the TFSA is tax free immediately too which means you can reinvest it even quicker. Won't the avg. earnings inside a TFSA with something like STXIND/RAFIND outperform the growth of an RA?
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You're missing the point. On day 1 you earn R1000.

Stick that in an RA and your starting position is R1000
Stick that in an TFSA and your starting position is R600 (or whatever your tax bracket is)

The RA will get hit with some tax when paying out, but I doubt it'll compare to that initial setback. Both should be tax free growth until its paid out afaik.

The RA can also be structured to include an EFT component. Check out sygnia's products.
 
What is the limit for RA contributions for it to be tax deductible.

Snippet from tax guide which I can't understand:
 

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RA vs TFSA

- Pre and post tax money as mentioned (I'd rather sit with a large heap of money and get taxed on it than a little heap with no tax lol)
- RA protected from yourself and creditors until at least 55 (and then you can take out 33% and invest the rest for a pension - can do it at any age after 55) while TFSA is much more accessible.
- You can still take out a R500 000 lumpsum (and it will be more in the future) tax free out of the RA and then it gets taxed at whatever the table says above that.
- You only pay income tax on what you take out as an income, so the pension can still grow nicely if you take out a measly 2.5%, (minimum withdrawal rate allowed in a living annuity, highest drawdown rate is 17.5%).
- The older you are the better income tax rebates you get.

Unless you are a pretty low income earner the TFSA will most probably not be able to meet your retirement needs.
 
Depends on various factors. I have however not checked the maths in these articles...

http://www.moneyweb.co.za/mymoney/moneyweb-personal-finance/will-taxfree-savings-accounts-trump-ras/

So the tax benefit would probably only be on the lump sum portion. However, a rough calculation suggests that this nett tax gain over a RA will only be there for anyone who starts investing in a tax-free savings account before the age of 30 and contributes the full R500 000 in the shortest time allowed.
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This one does the calculation over a shorter time period:
http://www.moneyweb.co.za/mymoney/m...taxfree-savings-account-vs-retirement-plan-3/

“Under these assumptions, the tax-free savings vehicle will marginally yield better results than the retirement fund, but at lower marginal tax rates (30% and lower), the retirement fund option will yield a slightly better outcome,” Wessels says.
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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.
 
sloe-joe said:
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.
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Just a small bit, can organise an aggressive RA with 75% equity and 17.5% (maybe even 20%?) listed property and 7.5% (5%?) bond fund...
 
supersunbird said:
Unless you are a pretty low income earner the TFSA will most probably not be able to meet your retirement needs.
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The question is not to replace the RA but if it is worth filling it with the first R30k every year before carrying on with the RA.
 
Hamster said:
The question is not to replace the RA but if it is worth filling it with the first R30k every year before carrying on with the RA.
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If its your only savings, then neither probably. Equal split.

If you have 15% already going to employers retirement fund, do the TFSA account first.

In my case, I would do it monthly, so both TFSA (EasyEquities transfer?) and a RA debit order. Above and beyond my 15% employmer fund.
 
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