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Understanding How TFSA Works

Demystifying Tax-Free Saving Accounts.
A flower pot filled with money and a seedling growing out of it.

Benefits of TFSA:

SARS introduced Tax Free Investments in 2015 as an incentive to get South African households to save. Tax-Free Saving Accounts (TFSA) are a great tool for this, offering ways to save and invest money without paying taxes on the growth.

  • No Taxes: With TFSA, your money can grow without worrying about paying taxes on things like dividends, interest, or gains from investments.
  • You Choose: TFSA gives you options. You can put your money in different things like savings accounts, investment funds, or even stocks, depending on what works best for you.

Limits and Considerations:

  • Annual Contribution: You can contribute a maximum of R36,000 per year to your TFSA as of 2024.
  • Lifetime Limit: There's a total lifetime limit of R500,000 for your TFSA contributions.
  • Contribution Tracking: Withdrawals don't reset your contribution limits. If you put in R100,000, withdraw it, and then put in another R100,000, you've used up R200,000 of your lifetime limit.

A Friendly Reminder:

Remember, withdrawing money from your TFSA doesn't reset your contribution limits. So, it's not ideal to use your TFSA for emergencies because taking out money reduces your lifetime limit. If you withdraw money and then put it back in later, you've still used up part of your lifetime limit. It's better to keep your TFSA for long-term savings and have a separate emergency fund to avoid reducing your lifetime TFSA contribution room.

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