Investments
Tax-free savings accounts
A tax-free savings account lets your money grow, and lets you withdraw, without tax on the growth, as long as you stay inside the contribution limits. Pay in more than the limit and SARS can charge a penalty tax on the excess.
Limits first
The limits are set by SARS. For several years the annual limit has been R36,000 and the lifetime limit R500,000. Those numbers can change. Confirm them before you contribute, and remember that a withdrawal does not reset the lifetime limit. Money you take out does not give you the allowance back.
Because the allowance is limited, families often use it for long-term money rather than as a transaction account. There is no tax deduction for the contribution, which is one difference from a retirement annuity.
What it is not
It is not a special rate of return. The underlying investment can still fall. “Tax-free” describes the tax treatment, not the performance.
It is also not automatically better than an RA. One may give you a deduction now and restrict access. The other may give you flexibility and no deduction. Which matters more depends on your tax rate, your time horizon and whether you already use an employer fund.
General information only. This page is not personal advice and it is not an offer. Product rules, tax and your own circumstances decide what is suitable. Read the official documents before you decide.
Questions we hear
What happens if I contribute more than the limit?
SARS can charge a penalty tax on the amount over the annual or lifetime limit. The penalty is easy to trigger if you have more than one tax-free account and lose track of the total. Keep a note of what you pay in across every provider.
Can I withdraw when I want to?
The product rules usually allow a withdrawal, and the withdrawal is not taxed. Taking money out does not restore your lifetime contribution room. Check the specific product for notice periods and any minimums.
Is a tax-free savings account the same as a retirement annuity?
No. A retirement annuity is aimed at retirement, contributions may be deductible within limits, and access is restricted. A tax-free savings account has a hard contribution cap, no deduction, and withdrawals are generally allowed. Many people use both for different reasons.
Related
Tell us what you are planning for
A quote, a question, or a look at the retirement illustration. We reply from matt@ncj.co.za. What you read here is general information, not personal advice.