As a young professional you have many financial goals and responsibilities to manage. From paying off student loans to saving for a deposit on a house, it can be challenging to prioritize your financial objectives. However, one investment option you should consider is a tax-free savings account (TFSA) or as I prefer to call it, a tax free investment.

A TFSA is a type of investment vehicle that allows you to invest your money without paying taxes on the growth or withdrawals. This investment vehicle was introduced in South Africa in 2015 as a way to encourage individuals to save more money.

If you’re considering a TFSA, there are a few things to keep in mind to make the most out of this investment. Let’s get into it!

One of the advantages of a TFSA is that you can contribute up to R 36 000 per year without paying any taxes on the growth or withdrawals. However, if you don’t use your contribution limit each year, you lose the opportunity to benefit from tax-free growth on that money.

To maximize your contributions, it’s a good idea to invest early in the year. This way, your money has more time to grow tax-free. If you invest later in the year, you’ll have less time to take advantage of the tax benefits.

Research from the Ninety One investment platform (formerly Investec Asset Management) shows that “ the largest TFSA account value on the Ninety One Investment Platform (Ninety One IP) was approximately R 624 000 – in other words tax-free growth of R 367 000 – almost two and a half times the total amount invested!

When investing in a TFSA, it’s essential to have a long-term perspective. The more time you give your investments to grow, the more money you’ll accumulate tax-free. As a young professional, you have time on your side, so consider investing in growth assets like equities (shares) and listed property through vehicles such as unit trusts or ETFs. 

Based on the current annual limit, it will take approximately 14 years to reach the lifetime limit of R500 000.

However, keep in mind that there are risks involved in investing in growth assets. The value of your investments can fluctuate over time. It’s essential to do your research and seek advice from a financial professional to help you make informed investment decisions.

While a TFSA is a great way to save for long-term goals, it’s not the best place to keep your emergency funds. If you need to withdraw money from your TFSA, you’ll lose the tax benefits of that money. Instead, consider opening a separate savings account for emergencies.

Keep in mind that once you withdraw from your tax free savings account, you cannot reinvest the amount again. Ninety One indicated that, “over the past three years, almost 17% of Ninety One IP TFSA investors made some level of withdrawal from their TFSA”. 

Investing can feel very overwhelming when you’re navigating the platforms and jargon by yourself. The good news is that it doesn’t have to be this way. I’ve got a FREE Clarity Call available for you.

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