Tax-free savings accounts have an annual limit of R33,000 per year and a lifetime limit of R500,000. It will take 15 years’ full contribution to reach that limit. The money in a tax-free savings account is not liable to any tax, except VAT on brokerage. For as long as you hold the account, you pay no dividend withholding tax, income tax or tax on capital gains. While you can’t make up the contributions you missed, you can continue contributing to the account until you reach your lifetime limit – however long that may take.
The tax savings on these accounts is what makes them so indispensable to a long-term portfolio, but that by no means implies that these accounts are only for those with a long-term investment horizon. The tax savings start from your first dividend payment, which means they are for everyone who prefers not to give 20% of their dividend to the government. If you listen to this podcast, we’re assuming that’s you.
Can you be too old for a tax-free account? In this episode, we argue these accounts are not age-dependent. We also spend some time discussing appropriate asset classes as you get older. As Patrick Mckay likes to point out, the tax-free allocation is the last money you ever want to use. If you’re in your 70s, that probably gives you an investment horizon of 10 years or longer.
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Clean version is below.
Joyfully Prosperous is wondering how to handle his mom’s TFSA account.
My mum is 78 years old. Does it make sense to open a TFSA account in her name? If so, would the Satrix 40 ETF be a better option than the Satrix Property (SA) ETF considering that the tax-free benefit will fall away eventually when we inherit shares from the estate.
Win of the week: Jennifer from New York.
I want to express my deep appreciation to you and the Fat Wallet crew for such a thoughtful and informative podcast.
I am 42 and live in New York City. I came across your podcast in a blog post last year while searching for English-language personal finance podcasts from around the world. I’m painfully aware that my knowledge and cultural biases around finance have been molded by media sources that function as if the United States is the only country in the world that matters.
Through the Fat Wallet Show, I have learned about topics specific to South Africa, and have found connections between those topics and issues we deal with here in the U.S. In a recent episode, you discussed the fact that some banks to intentionally mislead customers by stating misleading interest rates. Simon pointed out that in the UK, institutions are required to disclose the APR (Annual Percentage Rate). Here in the U.S., banks must also disclose the APR, a fact that I have taken for granted until I heard to this episode. I did a little googling and discovered that in the U.S., this mandatory disclosure only became law in 1968. This is consumer protection I’m certain most everyone my age here takes for granted.
In addition, I am humbled by your resolve to continue steadily investing through a years-long economic downturn, a situation which we very well may face here at some point. My work colleagues are quick to stop contributing to their retirement accounts as soon as there is any slight downturn in the S&P 500, such as what happened at the end of last year. And of course, they only resume investing when the markets are back up. When the U.S. does enter a real recession, I plan to continue dollar cost averaging into my index funds. I understand that is easier said than done, but I hope I am able to be as steadfast as you are.
As a side note, I’ve realized that my current top three financial podcasts seem to have a common theme – they are all hosted by women with journalism backgrounds!
- The Fat Wallet Show
- Afford Anything (hosted by Paula Pant)
- This Is Uncomfortable (hosted by Reema Khrais)
Keep up the excellent work, and again, thank you from the bottom of my heart. If you or Simon ever find yourself in New York City, I’d be happy to take you out for coffee (good coffee, of course). 🙂
P.S. Please tell Simon that we here in New York also cannot stand the Orange Man. I must constantly remind myself, although it is a small comfort, that he did not win the popular vote. 🙁
What do you think of a trust for shares?
I am getting married in September. It is difficult for me to convince her family to marry out of community of property.
I want to open a trust to put my ETFs in it. My partner and I have different views about money, I am a saver and she is a spender. I intend paying University and school fees for our children with this investment and am scared she might have different views about the use of this ETFs.
What are the disadvantages and advantages of having ETFs in a trust?
Hong Kong Hans
I’m a new listener and new to researching. I live abroad, so can’t deal directly with South African products, but I’ve learned so much general knowledge from your show and enjoy it tremendously.
You’ve mentioned several times that buying shares in a company entitles you to a share in the profit. How are we to understand companies that don’t pay dividends despite turning a profit? For example, facebook has pretty decent profits, yet have never paid dividends at all.
So thanks to you guys, I moved my (and my wife’s) RA to 10x. Was quick and painless and didn’t cost too much. The IT3(a) I received from Sanlam assigned the SARS code 3920 – RETIREMENT FUND LUMP SUM WITHDRAWAL BENEFIT. There’s another spot where the code is 3699 but I can’t find a description of it on SARS’ website.
I didn’t withdraw that money, it was transferred directly to 10x, it didn’t touch my account.
I’m really concerned about this and hope that you would be able to answer 2 questions, and hopefully set my mind at ease.
- According to the IT3(a), the lump sum is taxable. Do I now have to pay tax on that money? On money that moved from one provider to another?
- Will this lump sum withdrawal affect my tax-free withdrawal limit when I eventually retire in 44 years, 17 months and 24 days?
Would the following scenario then make sense as a retirement strategy? My partner retires two years before me.
I continue to work and we cover our living expenses using my salary during this time.
When I retire two years later, we draw down from her retirement savings (which should then be taxed at a lower rate) to cover our living expenses. Then when I have been retired for two years without earning a salary we start drawing down from my retirement savings as well.
What criteria is used to regard one market as “developed” and another as “emerging”? Does gross domestic product or gross national product per capita play a role, what is the cut-off point?
Are EMs more susceptible to global market volatility, in comparison to DMs? If so, what causes such? Could it be that, their markets, assets, and level-caps, are smaller, therefore less resistant to shocks and volatility?
What type of stocks or asset classes are more profitable in EMs as opposed to DMs?
In what instance would you rather hold debt and equity in EMs? If the yield is higher in EMs, what determines such yield? How is such yield influenced by political, interest rate, and exchange rate risk?
As a result I now have about 80% saved in cash and the rest in various ETFs. I have made the decision to transfer the entire 80% that is in cash into my EasyEquities account and have submitted the relevant forms to EE and FNB already.
Once the cash has been transferred to my EE trading account, should I purchase one or more ETFs immediately or should I buy smaller numbers of shares at a time in order to phase in my investment?
One of my concerns with phasing in is that any cash I have not used to buy shares will attract a cash management fee from EE of 1.75% and only accrue interest of prime minus 3.5%.
The Fat Wallet Show is a no-nonsense personal finance and investment podcast hosted by Kristia van Heerden and Simon Brown. Every week we answer questions by a growing audience of finance enthusiasts. Submit your pressing money and investment questions to firstname.lastname@example.org.
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