They’re simple – and tax-free. Plus, your child (or godchild) would be off to a great start if you begin investing when they’re very young. What’s not to love? We asked an expert to decipher the small print.
1. The basics
THE GOOD: It’s tax-free! That means you’re not liable for any capital gains tax or income tax on the dividends and interest you get.
THE CAVEAT: There’s a limit to the joy. ‘Currently, the maximum amount you can contribute to a tax-free savings accounts (TFSAs) is R33000 per year (or R2750 per month via debit order) and the maximum lifetime contribution is R500000,’ says Jaco.
2. Is it like an emergency cash fund?
THE GOOD: You can withdraw money from your TFSA at any time without any penalties.
THE CAVEAT: Because you’re allowed a maximum contribution of R500000, if you withdraw, you can’t deposit more to top it up. It’s what you’ve deposited, not what’s in the account, that matters. PLUS, at the moment, a moneymarket account would be a better place to store ready cash. ‘You can get up to 8% interest, and you can keep close to R300000 in there before you start paying any tax on the interest,’ says Jaco.
3. It may be the longest relationship of your life
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