NEWS | Why it pays to invest in an RA and a TFSA
Why it pays to invest in an RA and a TFSA
It is almost the end of the tax year. If you have some extra funds available, consider adding to your savings in a retirement annuity (RA) or taxfree savings account (TFSA), thereby enjoying the significant tax benefits these products offer.
Why invest in an RA?
RAs can be viewed as gifts from the taxman.
For example, if you are currently paying tax at a rate of 45% and contribute R100 000 to your RA in the year of assessment, you effectively only contribute R55 000 of the R100 000, while SARS contributes the balance. Tax will be applicable when the funds eventually pay out at retirement, but due to the tax-exempt portion of the lump sum, as well as the tax rebates for individuals over 65 and 75, you may pay less tax at that time.
Why invest in a TFSA?
TFSAs are exempt from tax on interest, dividends and capital gains.
There are no restrictions on withdrawals; however, if you replenish the funds withdrawn, it will count towards your contribution limits. For this reason, these investments are generally more suited for long-term investing.
TFSAs are a great way to save for your child’s education (be aware of donations tax if the annual exemption of R100 000 per donor is exceeded).
January 28 2025 By Ninety One
