Some tax-free options for your bonus

THIS time of year we all look forward to switching off, going on leave and, for many, also time for the annual bonus.

But before you are tempted to spend your entire bonus on a holiday, how could that money secure your future?

Using your bonus wisely now could find you with more savings at your disposal later in life, especially when using a tax-efficient product.

Retirement annuities

A retirement annuity (RA) aims to grow your pre-retirement investment so you have a pool of savings available when you retire.

If you have an existing RA, your bonus would be a welcome lump sum boost to your retirement savings.

If you are not already saving for retirement, this could be the perfect time to start.

All your investment growth in an RA is tax-free, proceeds up to a certain amount at retirement are tax-free, and your investment contributions are tax-deductible, up to a certain limit.

You can make lump sum or debit order investments and must remain invested until age 55 (some exceptions apply).

Tax-free savings accounts

This product is geared for growth and can be tailored to your individual needs and risk tolerance.

Introduced by the government last year, tax-free savings accounts (TFSAs) have changed the way many South Africans save – you can build significant wealth over the long term by making small contributions while avoiding having your returns diminished by tax.

You can invest up to R30 000 a year and up to R500 000 over the lifetime of your investment.

You can withdraw funds at any time, but focusing on the long term will ensure maximum reward.

A TFSA offers the flexibility of a standard discretionary investment, without any of the tax implications.

Act in good time

You still have an opportunity to maximise your tax savings for 2016-17 – but you must act in good time.

The cut-off date for contributions to retirement annuities is February 28.

However, most product providers require monies to be received and applications in good order before this date.

Check with your adviser when your applications are due.

Start making the most of your bonus

You will thank yourself for making smart decisions today.

Investing your bonus sensibly now could be a lifesaver or a pleasant luxury further down the line.

Then you can relax during the holidays, knowing your investment will already be earning returns when you get back.