INSIGHTS
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make a full withdrawal, the child s lifetime contribution limit to the TFSA is now reduced to R300,000 from R500,000, which makes it harder to achieve the benefits of compound interest.”
The same, says Canham, applies if you are investing in a TFSA for your own benefit.
Ultimately, the TFSA structure should be used only with a long-term savings strategy in mind so as not to waste the lifetime contribution limit.
She says that when it comes to a long-term savings plan for a minor child, a retirement annuity is a better option as nobody not even the child can access the investment prior to them turning 55,unless it is valued at R15,000 or less. When it comes to the most tax efficient structures in retirement, Canham maintains that the best long-term value is to have both a TFSA and a retirement annuity. This way you can lower your income tax in your retirement years by drawing an income from both structures. If, for example, you require a monthly income of R50,000, you could benefit by drawing R30,000 a month from your pension or living annuity and taking the balance from your TFSA. Because the R20,000 drawn from the TFSA will be tax free, you will only be paying tax on the R30,000.
ESTATE DUTY While TFSAs offer more control with regard to who receives the proceeds once the investor has died, this is at the expense of having to pay estate duty on the sum accumulated within the TFSA. A retirement annuity, on the other hand, allows the proceeds to pass directly to the beneficiaries, leaving the ultimate decision regarding who those beneficiaries are to the trustees of the fund. It s important to know that even though the investor may have nominated beneficiaries, the trustees
