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#AskaFinancialPlanner: RA or tax free investment for my extra savings?

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Q

Hi, I am contributing towards work’s pension fund, have some additional short term savings that I can access on short notice and then also monthly savings for my children’s education one day. I am looking at increasing my savings but would like to know if you would recommend I invest the money into an additional retirement annuity or rather benefit from using a tax free investment vehicle? What are the important things I need to understand with regards to each of these investment options? – Allan

A

Hi Allan, The fact that you think about your investments and savings in such a manner is a great to start. The most important question that you need to ask yourself is – what your main objective is with regards to your additional savings.

A Retirement Annuity and Tax Free Investment Vehicle both offer a tax break but the objective of your additional savings is key. As a rule of thumb, the tax deductibility of your monthly premiums into a Retirement Annuity would save you more than the prospect of Tax Free Returns. Therefore, if your objective is to maximise your tax breaks, the RA is the better option.

Remember that you can only access your RA monies at the age of 55. The Tax Free Investment Vehicle on the other hand, allows you to access your funds at any time. Bear in mind that the current annual limit that you are allowed to deposit is R33,000 with a lifetime limit of R500,000.

In summary Allan, if your primary objective is to maximise your tax breaks, the RA is probably best. If you believe that there is a chance that you will have to access your funds, the Tax Free Vehicle is best for you.


Got a pressing question? Email mariette@hometimes.co.za and we’ll be sure to assist


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Donovan is a financial advisor at Money Wise Associated Financial Services who believes in challenging the status quo on how financial advice is currently delivered to clients. He takes pride in showing his clients that financial and other goals are attainable through appropriate planning and affordable solutions. Donovan has completed his Masters in the field of Financial Economics, Honours in Investment Management with distinction and Bachelors of Economics with distinction.

 

 

 

 


Disclaimer: The information above is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by HomeTimes and Money Wise Associated Financial Services CC. Any expression of opinion is personal to the author and the author makes no guarantee of any sort regarding accuracy or completeness of any information or analysis supplied.
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Mariette Steynberg is a qualified economist with a post-graduate diploma in financial planning. She has enjoyed working on holistic financial plans for clients in various stages of life, as well as a development economist assessing the socioeconomic impacts of new developments. When she is not working, Mariette enjoys parenting her quirky, delightful toddler girl. Cloth diapering, Eskimo kisses and the importance of reading to your child are all causes close to her heart. Mariette is passionate about financial education and hopes to use the experience she has gained to share knowledge with HomeTimes’ readership. Her goal is to provide information that is implementable by everyone.

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