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Finance Minister Nhlanhla Nene has formally announced South Africa’s first ever tax-free savings accounts in his Budget Speech earlier this year (click here to learn how they work and here to learn more about how to maximise their benefits).
Gregg Sneddon, Certified Financial Planner at The Financial Coach, does not like them. “The R30 000 annual contribution limit is just not enough,” laments Sneddon. “I’m also worried that minimum investment amounts set by the financial service providers will make it inaccessible to many.”
Another disadvantage of these accounts is that they are not protected from creditors in the way that Retirement Annuities (click here to learn why Retirement Annuities are the best way to save for retirement BY FAR) are. “They also form part of your estate which means you’ll be hit with estate duties when you pass away,” warns Sneddon.
In Sneddon’s view, the most beneficial way of utilising tax free savings accounts will be as a way to save for education. “When a child is born the parents or grandparents can open an account in the child’s name. By the time the child reaches adulthood you’ll have a very tidy amount for education.”
Listen to the audio (from 0:00 to 4:31) for Sneddon’s very comprehensive discussion on the ins and outs of tax-free-savings accounts. From 4:31 he says why he’s not a fan.
This article first appeared on 702 : Tax free savings accounts 101 (and why they’re NOT what they’re made out to be)