MyMoney Online

Understanding investments: Tax free savings account versus retirement annuity

A tax free savings account (TFSA) and a retirement annuity (RA) are excellent investments as they offer returns which are not taxed. This vastly improves the performance of the investment over time.

Financial fitness coach, Paul Roelofse help you understand the differences between the two, so that you are able to make a more informed and appropriate investment choice. It boils down to different strokes for different folks.

The common ground

Both vehicles enjoy tax free status on their investment returns. Capital gains tax , withholding tax on dividends and income tax on interest and rental income are all free. So they both offer the same tax advantage on returns.

The limits

The TFSA has a limit of R30 000 a year to a maximum of R500 000, whereas, there is no limit to the RA. However, the tax efficiency of the RA is more beneficial the higher your tax rate. The deduction is limited to 27,5% of taxable earnings.

The advantages

Liquidity is the main advantage of TFSA. You can access the funds at anytime. RA is inalienable – meaning that creditors cannot touch your investment. This may prove to be useful for business owners.

The conclusion

So TFSA is for the lower tax payer who needs access to the investment in the short and medium term. RA suites the higher tax payer for the long term where access to cash along the way is not an issue.

There is a strong case for investing in both.

Listen to the audio below for more information...

Read more from Paul Roelofse at www.investforlife.co.za

CapeTalk welcomes all comments that are constructive, contribute to discussions in a meaningful manner and take stories forward.

However, we will NOT condone the following:

  • Racism (including offensive comments based on ethnicity and nationality)
  • Sexism
  • Homophobia
  • Religious intolerance
  • Cyber bullying
  • Hate speech
  • Derogatory language
  • Comments inciting violence.

We ask that your comments remain relevant to the articles they appear on and do not include general banter or conversation as this dilutes the effectiveness of the comments section.

We strive to make the CapeTalk community a safe and welcoming space for all.

CapeTalk reserves the right to: 1) remove any comments that do not follow the above guidelines; and, 2) ban users who repeatedly infringe the rules.

Should you find any comments upsetting or offensive you can also flag them and we will assess it against our guidelines.

CapeTalk is constantly reviewing its comments policy in order to create an environment conducive to constructive conversations.

Read More
3 JSE shares you should invest right now (by Momentum)

3 JSE shares you should invest right now (by Momentum)

Looking for a hot tip, or three? Here’s what Momentum Head of Investments and Savings Steven Schultz is buying...

Want to withdraw from your retirement fund? You’re not (even remotely) alone…

Want to withdraw from your retirement fund? You’re not (even remotely) alone…

The Money Show’s Bruce Whitfield interviews Galileo Capital Personal Financial Advisor Warren Ingram.

‘I’ll do it later’ – more wealth destroying than any market crash or recession

‘I’ll do it later’ – more wealth destroying than any market crash or recession

Personal Financial Advisor Warren Ingram discusses the extreme cost of procrastination and gives practical tips to overcome it.

Three reasons why you should have a trust

Three reasons why you should have a trust

A trust is a useful entity in some circumstances as the assets it owns do not belong to you, writes Paul Roelofse .

Three reasons why you shouldn’t have a trust

Three reasons why you shouldn’t have a trust

Having a trust seems like the right thing to do but financial planner, Paul Roelofse says it's not that beneficial for you.

3 things that turn investing into speculating

3 things that turn investing into speculating

Paul Roelofse suggests three things to avoid which will keep you on a path of investing rather than one of speculation.

Popular articles
Cape's blusterous winds too risky for the Mercedez Benz fashion week

Cape's blusterous winds too risky for the Mercedez Benz fashion week

Several shows of the Mercedes-Benz Fashion Week Cape Town 2017 had to be postponed due to the gusting winds.

Naked Scientist reveals the real cure for a hangover (and its not hot wings!)

Naked Scientist reveals the real cure for a hangover (and its not hot wings!)

Dr Chris Smith gives insights on what peaks your interest.

The rand is on a rampage

The rand is on a rampage

The rand is going from strength to strength. The Money Show’s Bruce Whitfield interviews Treasury One’s Andre Cilliers.

[CARTOON] Poephol With a Taste For Strife

[CARTOON] Poephol With a Taste For Strife

EWN's Dr Jack & Curtis take a look at the Spur confrontation that has taken the country by a storm.

Spur tightens its belt as 'two for the price of one' Monday burger special ends

Spur tightens its belt as 'two for the price of one' Monday burger special ends

The CEO of Spur says food inflation has played a big role in making this difficult decision.

3 emergency numbers you should have on speed dial and how they work

3 emergency numbers you should have on speed dial and how they work

These are the emergency numbers you should have on your cellphone and this is what you must understand about how they work.