By: John Manyike
Are you searching for savvy ways to secure your family’s financial future? How about ways to give your children the best gift you can – a gift that not even the taxman will be able to touch.
Look no further than a tax-free investment account that is accessible through most financial institutions and banks but not in the way you might be thinking.
Before we get there, let’s talk about how great a tax-free investment account is. The account offers families a fantastic opportunity to grow their money without fretting about taxes nibbling away at their savings.
Why this account could be a game-changer for you and your loved ones:
What’s in it for You?
· Tax-Free Growth: With a tax-free savings account, you pay no tax on the growth of your investment, including capital gains, interest or dividends. This means more money stays in this instrument to fuel your financial dreams.
· Affordable Start: You can begin your investment journey with as little as R250 a month. The low initial investment makes it accessible for families of all income levels to embark on their wealth-building journey.
· Generous Contribution Limits: Invest up to R36 000 per tax year and R500 000 over your lifetime, tax free. The generous limits ensure you can maximise your savings potential and reap the rewards over the long term.
· Quick Access: Need your money in an emergency? No problem. A tax-free savings account allows swift withdrawals when you need them most, providing peace of mind and financial security for your family. However, remember, if you’ve reached the R36 000 contribution limit and you withdraw, you won't be able to contribute again in the same year to reach the annual limit.
Here’s a quick warning though: if you put in more money than what’s allowed. For example, if you invest R40 000 instead of R36 000, you’ll get a penalty on the extra R4 000. It’s like a fine of 40% on the extra amount you put in. It’s important to stick to the limits to avoid paying extra fees.
Let’s talk about that family advantage:
Parents can open tax-free investment accounts for themselves and their children. This means parents can set up tax-free investments for their kids and lay a solid foundation for a secure financial future from an early age.
The tax-free investment account offers an excellent opportunity for families to invest in their children’s future.
If a parent opens one of these accounts in their children’s names, they can provide them with a tax-free gift that can be used for university costs, buying a car or starting their adult lives.
Investing in a tax-free savings account has no age restrictions, so children can invest in them. Plus, wherever you open the account, you can easily transfer it to another provider without any costs.
About that family opportunity, let’s do the maths. if you’re a family of five, including a mother, father,and three children, that means your family can contribute up to R180 000 a year, with a lifetime limit of R2.5 million.
With this opportunity, parents can help their children start adulthood on the right financial foot, free from the burden of tax liabilities and equipped with a solid foundation for financial independence.
This opportunity is about securing your family’s financial future and unlocking a world of possibilities for generations to come. With tax-free growth, affordable starting options and the added advantage of setting up accounts for your children, a tax-free investment account offers a compelling opportunity for solution for families to build wealth and achieve their dreams.
* This article does not constitute financial advice, speak to your financial adviser or bank to get more information about a tax-free savings account.
* Manyike is the head of financial education at Old Mutual.
PERSONAL FINANCE