Mastering effective tax-free savings in South Africa

By: Duma Mxenge, Business Development Manager at Satrix

Duma Mxenge

In the quest for financial prosperity, South Africans should embrace tax-free saving investments as a powerful tool to optimise their money. Duma Mxenge, Business Development Manager at Satrix, emphasises the pivotal role financial advisers play in ensuring clients harness the full potential of tax-free saving investment portfolios.

“In a nation burdened by high taxes, leveraging every available tax break is essential,” says Mxenge. He highlights the simplicity of accessing tax-free savings on platforms like SatrixNOW, where clients can effortlessly deposit funds into tax-free accounts and allocate them to suitable products such as exchange-traded funds (ETFs) or unit trusts, tailored to their risk profile.

Rather than the traditional approach of a year-end rush to contribute lump sums, Mxenge advocates for a strategic monthly investment plan. “Consistent, monthly contributions lead to substantial long-term growth, far exceeding the benefits of sporadic lump-sum deposits,” he explains.

Mxenge says that South Africans could consider ETFs and balanced funds for tax-free savings. “ETFs track an index, giving clients a similar performance to the stock market over time. Multi-asset class funds are great for lower risk appetites as they help weather volatility.

“If an investor commits to contributing as much as possible to their tax-free savings account, they’ll reach their lifetime limit in just under 14 years. If they faithfully invest monthly, maximise their contributions, and use the best investment vehicle for their needs, tax-free accounts can make a game-changing contribution to their retirement in the future.”

Once the investment strategy is set, Mxenge emphasises three key points. First, he stresses the significance of long-term investment, where the compounding effect and substantial tax savings manifest over time. Second, clients should view tax-free investments as integral to their long-term financial plan and understand the impact any withdrawals would have. Lastly, he advocates for the use of retirement annuities, with contributions of up to 27.5% of annual income, offering clients increasingly favourable tax benefits as contributions rise.

Mxenge says unlocking financial success through tax-free savings demands a thoughtful, strategic approach and financial advisers, armed with this knowledge, can guide their clients towards a path of sustained growth and tax efficiency.

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Disclaimer: Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.

Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information. 

Tax Free Savings Accounts: Annual limit of R36 000, lifetime limit of R500 000, 40% tax penalty applicable for contributions above the limit, per individual.

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