A tax-free savings account (TFSA) and a retirement annuity (RA) are excellent investments as they offer returns which are not taxed. This vastly improves the performance of the investment over time. Understanding the differences between the two will help to make a more appropriate investment choice. It boils down to different strokes for different folks.

The common ground
Both vehicles enjoy tax-free status on their investment returns. Capital gains tax, withholding tax on dividends and income tax on interest and rental income are all free. So they both offer the same tax advantage on returns.

The limits
The TFSA has a limit of R33 000 a year to a maximum of R500 000, whereas, there is no limit to the RA. However, the tax efficiency of the RA is more beneficial at a higher tax rate. The deduction is limited to 27,5% of taxable earnings.

The advantages
Liquidity is the main advantage of TFSA. You can access the funds at any time.
RA is inalienable – meaning that creditors cannot touch your investment. This may prove to be useful for business owners.

The conclusion
So TFSA is for the lower taxpayer who needs access to investment in the short and medium term.
RA suites the higher taxpayer for the long term where access to cash along the way is not an issue.

There is a strong case for investing in both.

Mother’s Day is a very important day for most. Mothers are undoubtedly the most important asset in the family. Mothers provide nurture and support with endless commitment giving their all even when they don’t have much left. How do you put a value on them when they are simply priceless? There are, however, some important financial aspects which should be in place which Moms should be aware of:

Get involved in the family’s financial plan

Understand the details of what provisions there are should a life-changing event occurs. Don’t leave it up to the spouse and find out the hard way if something happens. You will want to be assured that you know the financial implications and should adjust things whilst you can.

Is the family protected with sufficient life assurance?                                                

If Mom passed away leaving behind dependent children there could be serious financial ramifications for the family. Who will mind the children? If Mom contributed to the household income how will this be replaced? If Mom is dependent on Hubby and he passes on this could be financially disastrous. The amount of life assurance should cover all outstanding debts and leave behind enough to get through the months to maintain your monthly income needs until the children are off your hands.

Have you provided enough for education?
Provisions for education should be in line with your affordability. However, many families sacrifice a lot financially to put their kids through school leaving them in more debt than they can handle. Ideally, you should have a nest egg to subsidise your education costs. There are many ways to do this. My preferred is to have excess cash in your access bond which is available for the school fees and other must-haves. The bond provides liquidity and whilst there is excess you are paying off the bond in a shorter time.

Ultimately, a family that is well provided for is a happy one. Happy, happy Mother’s Day.