How to Do Tax-Free Saving Right in 2023

For every South African who dreams of reaching their financial goals, tax-free saving investments present an opportunity to get the most out of the money that they put away. 

Duma Mxenge, Business Development Manager at Satrix, says the first thing every financial adviser should do is to make sure clients are taking advantage of tax-free saving investment portfolios. “In a highly taxed country like ours, we need to make use of all possible tax breaks.” 

He says accessing tax-free savings is very easy. “On the SatrixNOW platform, it is as easy as choosing to deposit funds into the tax-free account option. From there, the funds can be allocated to a product - exchange traded funds (ETFs) or unit trusts - that suits the client’s risk profile.

“And, rather than trying to put as much money as possible into tax-saving investment vehicles at the end of the year, using time wisely is a lot more beneficial. Putting away a small amount every month will lead to much more growth of an investor’s money rather than trying to save a lump sum at the end of each financial year.”

Mxenge says ETFs and balanced funds are both good options for tax-free savings. “ETFs track an index, giving clients a similar performance to the stock market over time. Multi-asset class funds also known as balanced funds are great for lower risk appetites as they help weather volatility. 

“If an investor commits to contributing as much as possible to their tax-free savings account, they’ll reach their lifetime limit in just under 14 years. If they faithfully invest monthly, maximise their contributions, and use the best investment vehicle for their needs, tax-free accounts can make a game-changing contribution to their retirement in the future.” 

Once the investor decides how to invest, he says that there are just three more points to remember. “Firstly, invest for the long term - the longer you stay invested, the more substantial tax saving becomes. People only typically start seeing the returns match or exceed their contribution after about 10 years and thereafter after 20 years the value of the tax saving becomes relative. Set in place a strategy for clients which helps maximise the gift of time and compound interest. Next, encourage them to make no withdrawals. Instead, remind them to view this investment as part of their long-term investing plan. Lastly, make use of a retirement annuity to also save on tax. Up to 27,5% of an annual income can be contributed to a retirement annuity and clients pay less and less tax as their contributions increase.”

More about TFSA on SatrixNOW:

Tax free savings accounts allow you to put save up to R36 000 per year without paying capital gains tax, tax on interest income and dividends tax on that amount. Over the course of a lifetime, you can save up to a limit of R500 000. Every SatrixNOW profile comes with a tax-free investment account for your convenience. Find out more about tax-free investing here.

Disclosure

Satrix Managers (RF) (Pty) Ltd (Satrix) a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. Unit Trusts and ETFs the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to it being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments/units may go up or down. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The index and the portfolio performance relative to the index can be viewed on the ETF Minimum Disclosure Document and or on the Satrix (www.satrix.co.za) website. Satrix Investments (Pty) Ltd is an authorised financial service provider in terms of the Financial Advisory and Intermediary Services Act, 2002.

Disclaimer