A quick overview of the 10X Tax-Free Savings Account

31 May 2024

While many of our customers are interested in saving money, not everybody fully understands the many benefits of a tax-free savings account (TFSA). In this brief read, we will investigate the differences between a tax-free savings account and a few of the other options available. For cost-conscious individuals, the appeal of a TFSA is hard to deny, and with 10X, you have a range of diverse underlying funds at your disposal. Together, we can grow your money and build your investment portfolio.

A Brief Introduction To Tax-Free Savings Accounts (TFSAs)

With a tax-free savings account, investors can choose a variety of ways for their capital to be invested, and they do not pay tax on any interest or dividends that come from those investments. This means that regular investments over a longer period of time have the potential to generate significant returns, which are tax-exempt when the investor withdraws them.

There are some limits to the amounts you can deposit into a tax-free savings account. Currently, you can contribute up to R36,000 per year with a R500,000 lifetime limit (totalling R3 000 per month for approximately 13 years). Should you choose to exceed these limits, you will be taxed at 40% on the excess. However, if you are conscious of these restrictions, you can put your tax-free savings account to great use, leveraging compound interest to generate good returns over the longer term. However, if you foresee needing to make substantial withdrawals in 1–5 years, a tax-free savings account may not be the ideal choice. 

Knowing that the investment horizon is longer and being willing to contribute consistently, a 10X Tax-Free Savings Account may work for you. The 10X TFSA requires a minimum lump-sum contribution of R1 000, or a minimum monthly contribution of R500. You are also able to contribute to your TFSA ad hoc, or on a monthly, quarterly, or annual basis, with the option to stop or change your contributions as and when you need to.

Tax-Free Savings Account Vs Regular Savings Account

If you are proactively considering your future and putting money aside in preparation for retirement, congratulations, you are already on the right track. The trick is to get your savings to work for you, by allowing it to compound over time. With a regular savings account, while you may receive a set interest rate, and you have the ability to contribute a larger initial lump sum, you do not have access to the variety of investment options that potentially allow for greater growth on the capital amount. TFSAs are about saving in increments for the long term, while having a greater choice about how those savings are invested.

The fact that TFSAs are not subject to any tax on dividends, interest, withdrawals, or capital gains makes a substantial difference to the potential returns of the investment – this is not the case with a regular savings account. The ability to make withdrawals at any time enhances flexibility and returns financial control to the investor. Most regular savings accounts have strict limits and even penalties on withdrawals, and many require substantial upfront notice, which can be problematic should financial issues arise.

Another benefit of tax-free savings accounts is compound interest, which is essentially interest earned on interest. By the time you have contributed your lifetime limit of R500k, you would have had more than a decade of interest earned and reinvested, and if the fund in which you are invested has performed well, you could be looking at significant gains. 

Why Choose A 10X Tax-Free Savings Account?

Beyond the benefits that come with a TFSA, there are more than a few great reasons to place your trust in 10X Investments. Firstly, we keep our fees low, meaning more money goes back into your pocket. Secondly, we have been in the industry for some time now and boast a track record of consistently superior returns. Added to this, companies like Deutsche Bank, Isuzu and DHL choose us to manage their employee’s retirement funds – so you know your money is in highly competent hands. Lastly, our diversified portfolios are designed to mitigate investment risk and give you peace of mind.

The 10X Difference

Excellent Service: At 10X, we’ve been helping South Africans invest for more than a decade. We take our responsibilities very seriously, and pride ourselves on providing personalised, always accessible service to our clients. You won’t find call centres here, just highly-experienced consultants who are ready to help you make better decisions for your future. 

Return On Investment: As one might expect, fund performance is fairly important in our line of work! Our flagship, the 10X Your Future Fund, has a 100% market benchmark outperformance track record. Whether your goals are future-focused, or you are more interested in short-term returns, we have a range of superior fund options available.

Low Fees: Our clients are savvy. They know that the biggest predictor of investment returns are the fees they pay on those investments. Did you know that a 1% difference in fees can mean up to 30% more in returns? We keep fees low so that our clients get more out. 10X also offers a sliding fee scale – the more you invest with us, the less you pay.

Constant Updates And Painless Withdrawals: Understandably, most people like to keep track of the state of their finances. For this reason, we provide clear, unambiguous investment reports and My 10X, an easy-to-use online investment portal. Just as crucial as keeping track of your money is the ability to withdraw funds, should it become necessary. With us, there’s no fine print regarding withdrawals – they can be made at any time. 

A Few Common Questions About Tax-Free Savings Accounts

One of our primary goals is to ensure that it’s easy for our clients to understand our services. With that in mind, let’s explore a few frequently asked questions about the nature of TFSAs.

Does The Annual Contribution Limitation Carry Over To The Following Year?

While it certainly might be beneficial to have the annual limitation carried over to the following year, unfortunately, it doesn’t work this way. If you deposit less than R36,000 into your tax-free savings account in a tax year, the remaining amount is simply forfeited, meaning there is no change to your annual limit for the following year.

For instance, if you were to deposit a total of R16,000 throughout the tax year, you would not be able to invest the remaining R20,000 the following year on top of that year’s limit of R36,000. It is for this reason that we recommend utilising the entire R36,000 if your financial position allows for it. By doing this, you are optimising your use of this tax-free resource and ensuring that you have the best chance of leveraging the compounding effect of your savings.

Can I Open Multiple Tax-Free Savings Accounts?

In short, yes. However, while you can have as many as you like, the annual limitation applies across all of your registered accounts. Ultimately, if you were to deposit R10,000 into one of the TFSAs, your remaining limit would still stand at R26,000 across all the others. Why might someone do this? Simply, to diversify their investments. For instance, a person might want to invest half of their allotted TFSA contribution in a fund focused on new technology, and the other half more conservatively. Or, they may want to split their holdings between different providers.  

How Do I Report My TFSA When Doing My Tax Returns?

The financial institution responsible for your tax-free savings account will provide you with a tax certificate known as an IT3. This document lists all relevant tax-related information including interest, dividends, contributions, and withdrawals.

This same data will also be sent to SARS, who then use it to inform your ITR12 in the relevant “Tax-Free Investments” section. To ensure accuracy and prevent future headaches, you should double-check that the SARS data aligns with the data on your tax certificate.

How Do Tax-Free Savings Account Contributions Work For Minors?

Many forward-thinking parents are creating TFSAs for their children to help them get a head start. This is a great idea as it allows for the wonders of compound growth and the ability of the TFSA to generate a meaningful amount of interest in later years. However, the same limitations apply to minors when making deposits or withdrawals. So, when making contributions on behalf of a child, be mindful that all contributions count towards their lifetime limit of R500,000. If you’d like to explore the benefits of a TFSA for you or your children, we encourage you to get in contact with us today.

10X Investments is an authorised Financial Services Provider (FSP number 28250). The content herein is provided as general information and is not intended as nor does it constitute tax, legal, investment, or financial advice as defined by the Financial Advisory and Intermediary Services Act, 2002.

The 10X Living Annuity is underwritten by Guardrisk Life Ltd.

10X Fund Managers (RF) (Pty) Ltd is an approved manager of collective investments schemes in securities in terms of Section 42 of the Collective Investments Schemes Control Act, 45 of 2002.

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