Did you know that when you invest, tax can reduce your returns significantly? Your returns and capital gains on your investment get taxed significantly. It can be discouraging, but on the bright side, you've got options to prevent that from happening. Tax-efficient investing can minimize your tax burden and maximize your returns.

How can I be tax-efficient with my savings?

If you don't consider the impact of tax, it could hamper your ability to reach your savings goals.

To optimize your savings for tax efficiency, our Old Mutual Head of Marketing: Retail Savings and Income Solutions, Marius Pretorius believes that South Africans should also consider a Tax Free Savings Account (TFSA), the next most tax-efficient savings vehicle. “Most people start off by saving money in a savings bank account. Although bank accounts are a good option from a short-term perspective, the interest earned is low compared with market-linked invested alternatives,” he says.

“Investments traditionally attract a range of taxes, such as income tax and capital gains tax for the investor, or taxation within the investment fund, and can impact the ultimate return earned.” This is why it's important to speak to a financial adviser who can provide advice on the best way forward, according to your specific financial needs and goals at any particular stage.

How can I invest tax free?

A Tax Free Savings Account is a specific tax structure that the government created to allow individuals to save up to R 46 000 per tax year with a lifetime contribution limit of R 500 000, without paying any tax in respect of the investment. Tax won't be deducted on your interest, dividends, and capital gains, or when you withdraw from the investment.

What's in it for me?

• Enjoy flexibility. You can contribute how you want, whether it's contributing a once-off sum during the tax year, or a recurring premium where you choose how much to add every month or when you can.
• You can withdraw at any time. Keep in mind though that because of the maximum (annual and lifetime) contribution limits, it should not be seen as a short-term savings investment.
• You have access to a wide variety of underlying funds to choose from to suit your financial goals.

How do I get the most out of saving tax free?

1. Start early and make the maximum allowable contribution each year
The really big tax benefits come to those who remain invested for the long term. This is because tax savings increase over time as compound growth is earned on the tax saved. Invest as much as possible at the beginning of the tax year to take advantage of growth throughout the year.

2. Avoid the temptation to withdraw money
Even though you can withdraw from your TFSA at any time, it is important to also be aware of the long-term implications of doing so. You could potentially risk not being able to replace the funds you've withdrawn and end up not meeting your desired goal.

3. Choose funds according to your needs
When you invest in a TFSA, the time you want to invest and your risk appetite should influence how you go about managing your portfolio. Choose a fund according to your goals and financial needs.

How do I get started?

You can apply online for your TFSA. If all this information seems overwhelming, you can chat with one of our friendly and accredited financial advisers. They're here to help you reach your financial goals in the best way possible.