How will your ‘tax health’ look in 2024?

Welcome to a brand new year, one that will, as always, present some challenges but along with challenges come opportunities and no doubt you are entering 2024 with great expectations of improving your life in many ways. 

If you are like millions of others you may well have signed up for a new gym contract or decided to get the bike or the running shoes out so that you can get fit again. This is a good thing because, as we all know, good health is everything and creating wealth is pretty pointless if you are unable to enjoy it.

You can, however, have the best of both these worlds and whilst you get physically fit also get financially fit, something we have written about many times. Financial fitness, like physical fitness, involves regularly exercising good financial principles, like budgeting accurately, saving to invest, protecting your health and wealth and ultimately long-term planning for a good retirement and leaving a worthwhile legacy.

Tax health is the best contributor

What many fail to realise is that a massively important contributor to boosting your financial fitness is utilising the tax allowances and saving vehicles that are willingly provided by the government to encourage retirement savings. There are two in particular that you should incorporate into your financial fitness regime and these are TFSAs and Retirement Annuities.

What are TFSAs?

When you invest in a TFSA, both the growth and the income gained from the investment are tax-free. In essence, this means you will never be liable for any Capital Gains Tax or income tax on the dividends and the interest received. So how much can you invest?

As things stand going into 2024, the maximum amount you can contribute to a TFSA is R36,000 per year (or R3,000 per month) but there is a cap on the maximum you can contribute to the TFSA in a lifetime which is currently R500,000.

One of the benefits of investing in a TFSA is that it is flexible, allowing you to withdraw money from it whenever you wish without incurring penalties, but do note that once you’ve reached your lifetime maximum allowance, you can’t top this up again after a withdrawal!

A couple of things worth noting 

Just a little advice on TFSAs is that although you can withdraw from it this is not advisable and it should be seen as a long-term investment. This is because the returns of your TFSAs will only start matching or possibly exceeding your contributions after about ten years and the value of the tax savings really becomes significant after about twenty years.

It is also not the only worthwhile tax-saving product and in fact before even considering this one should invest in the other extremely good tax savings retirement product – a Retirement Annuity. This allows you to invest a large portion of your income tax-free and pays great dividends too, so it’s a no-brainer and there will be more on this in a future article.

There is also a lot more detailed information you should know about a TFSA, in terms of setting it up and what other investments should be made in conjunction with it, when considering your long-term investment picture. Your Financial Advisor can assist with all this. 

The group with a heritage of creating financial fitness

Hereford Group Financial Advisors are all highly trained to ensure that you remain at the peak of your financial fitness and to incorporate ‘tax health’ creatively and constructively.

Think of your FA as your financial private fitness coach, as we treat every individual and business as unique entities requiring specialised financial treatment. Talk to a Financial Advisor today to learn more – and watch this space as we continue next month on this important theme of creating and building your ‘tax health’ in 2024.