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On 1 March you can open a tax-free savings account… Here's what you need to know

by , 17 November 2014

On Friday, the National Treasury released its draft regulations on the tax-free savings accounts that you can use from 1 March.

With several months to go until you can start using them, there may still be some changes to the scheme.

So what can you expect from a tax-free savings account? And what benefit will they have for you?

Let's take a closer look…

Why is the National Treasury introducing tax-free savings accounts?

This is a move by the government to try to encourage South Africans to save.

The new tax-free savings accounts are to help to lessen South Africans “financial vulnerability and reliance on debt,” reports Tax News. This will help individuals cope if they have to cough up a large amount of money at short notice or lose their jobs.

The government is opting to “shape products and rules to encourage good behaviour,” Stuart Theobald in BDLive explains. The new regulations show that savers can use these new accounts “to invest in products from insurance companies, asset managers, stockbrokers, banks and the government itself”.

But some investment products won’t qualify for inclusion in the accounts.

For example, the regulations exclude “products that charge performance fees,” says Inge Lamprecht in MoneyWeb. The treasury views these products are not adhering “to the principles of simplicity, transparency and suitability”.

So this move removes hedge funds from inclusion in tax-free savings accounts, notes Theobald. One exception to this rule is “registered unit trust funds”.

The rules so far for your tax-free savings account

So if you’ve got plans for your tax-free savings account, here are some guidelines to get you started, Lamprecht and Theobald explain…

  • Each year, you can put R30,000 into a tax-free savings account.
  • This is limited to R500,000 over your lifetime.
  • You can only withdraw from your tax-free savings account to another of your accounts.
  • You can’t have debit orders on the account or make third party payments.

There are similar saving encouraging accounts elsewhere. For instance, in the UK, cash ISAs are tax-free savings accounts.

Just as with Cash ISAs, once you withdraw cash from your tax-free account, you can’t add that money back in.

So if you manage your finances well over the tax year, you can put away R30,000 of your income away. Any interest and return on that sum will remain tax-free.

In the build up to the launch of these tax-free savings accounts, expect a plethora of offers from financial institutions trying to get your business.

So there you have it. What you need to know about tax-free savings accounts.

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On 1 March you can open a tax-free savings account… Here's what you need to know
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