TFSA or not to TFSA?

Alec Hogg recently wrote a piece encouraging people to take full advantage of the tax free savings account before the end of February (http://www.biznews.com/undictated/2016/02/05/go-full-out-for-tax-free-savings-accounts-but-with-two-provisos/)…I disagree with him on this one and here are the reasons why.

Sorry Alec but I disagree with you on this one…I have previousy written about how I’m not so excited about TFSA (https://www.thefinancialcoach.co.za/2015/03/23/tfsas-a-better-way/) but we need to remember that the TFSA’s are not aimed at the people that read our websites – they are intended to get non-savers saving. For the average reader of our sites who has maxed out their retirement savings and has spare cash to invest, I would rather have funds invested into a UT or ETF physically offshore than a TFSA in SA…funds invested into an offshore unit trust are to all intents and purposes tax free in SA.

On a roll-up fund there are no distributions and therefore no tax implications in SA…yes there will be CGT one day but I will not be bringing all the funds back in one go so the tax effect of the capital gain will be muted. I think the TFSA is a great idea in principle but as with all other Government savings initiatives they dont go far enough (Fundisa being another example).
To my mind, to be meaningful the annual amount should be closer to the UK amount of 15k GBP – even R200k in SA would have been better…but government dont want to be seen to favour the wealthy.
Anyone who thinks that they are going to have a fortune saved from the TFSA is dreaming. Realistically, the R30k pa for 15 years should allow you to draw a monthly income of roughly R2150 in todays terms for 30 years…not even half a month’s shopping for our “average” reader.

If you have spare cash to invest before the end of February then first maximise your RA/retirement contributions and once you have done that then look to take the funds offshore directly into a foreign currency based unit trust or ETF. That’s what I am doing!

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