Critical February investment deadlines loom

It’s time to review how much you’ve put into your tax-free investment account, and get cracking on maxing out your retirement tax benefits

You survived December and Januworry, while recent BankservAfrica data shows record card spending, so we were certainly having a good time of it. Life is back to normal, so now it’s time to turn our attention to our investments in 2024.

The administrative points to note now are the two deadlines coming up at the end of February, the end of the tax year for individuals.

First is the tax-free savings account annual limit. Each individual can contribute R36,000 a year and if you haven’t done the full contribution, check if you have available funds left to do so. If you haven’t done the full amount and can’t afford to, consider selling some discretionary exchange traded funds (ETFs) in your portfolio to transfer into your tax-free account.

There may be some modest capital gains but the first R40,000 of CGT is exempt from tax and getting money into your tax-free account as quickly as possible means more time for them to grow, taxfree.

Come March 1, the annual limit resets and assuming there are no changes in the budget speech, you can contribute another R36,000. A lump sum addition is best, giving it more time, but monthly is perfectly fine if the lump sum option is just not possible.

Again, if you have any discretionary ETFs, consider selling R36,000 and putting that money to work tax free while you rebuild the discretionary investment over the rest of the year.

Also review the ETFs you hold, both in your tax-free account and your general portfolio. That China ETF you bought back in 2021 is now about 50% off the highs. You’re probably waiting for it to recover so you can sell at breakeven, but will it? Ask yourself a simple question. Knowing what you know now about China, would you be a buyer at the current price? Try not to let the falling price action distort your thinking. Be rational about the future for China and if you wouldn’t be a buyer right now, then exit the ETF and buy one you do like for the future.

The next tax event is around your regulation 28 retirement product. You can deduct contributions from your salary, reducing your tax liability with the contribution limit of R350,000 or 27.5%, whichever is lower.

Again, if you have the spare cash or some discretionary investments you can sell, it’s worth funding this to the full. Not only for the tax benefit now but also for the benefit in your retirement when you start spending.

You can contribute in excess of the above limits to your regulation 28 retirement product, but you won’t get the tax benefit in this year. However, it will be rolled into subsequent years with no limit of how long you can keep rolling. This is especially useful if you’re nearing retirement as it can reduce your tax in the first couple of retirement years.

Lastly, check the fees of your retirement product. Much above 1% is simply too much and hurts your long-term returns.

If you are paying high fees, make this the year you move the fund to a low-cost provider. Happy admin!