CAN I WITHDRAW R500 000 TAX-FREE?

One of the great things about TFSAs is that they leave a lot to the investor’s discretion.

The regulator is not prescriptive about how long you have to invest, or when you can access your money.

Although legislation does put limits on the kind of funds that providers can offer in a TFSA, these regulations are mostly directed at managing the overall cost of investing. Legislation is not prescriptive either with respect to your asset allocation or the mix of funds in your portfolio. This is great news for investors, because, when it comes to growing your capital over the long term, you want to allocate as much as possible to equities. Equities, or shares, is the asset class that has historically outpaced inflation the most over the long term, making them a necessity in any long-term portfolio. Of course, equities also tend to be volatile in the short term (so be prepared for some ups and downs along the way).

While the accessibility of

TFSAs makes them a great convenience to have on hand, the benefits they offer really begin to stack up in the long run. Unlike an RA, for example, you cannot claim a tax deduction on your contribution. But all the growth in your portfolio – including interest, dividends and capital gains – is tax-free. Usually, you’d pay out a portion of the growth on your investment as tax in various forms over time. The compounding effect of tax-free growth can be powerful – but you need to be patient. Invest for as long as possible, and resist the I resigned from the SA Police Service in May 2018 and was paid out

R4.5 million, which was transferred to a preservation fund at Sanlam. I took R1.5m (pre-1998; it was not taxed). I turn 50 in September and can retire only at age 55. Do I qualify for the R500 000 tax-free withdrawal, and if there is money left of the pre-1998 amount, can I still access this too, which is supposed to be tax-free?

Name withheld

Marius Cornelissen, a financial adviser at PSG Wealth in Menlyn, responds:

At retirement from your pension preservation fund, you are allowed to withdraw up to one-third of the value of the fund as a cash lump sum. The remaining two-thirds must be used to buy an annuity (pension).

If we focus on the tax that applies to the cash lump sum taken at retirement, it is important to note that your pre-1998 years of service will be taken into account when calculating the taxable lump sum. This means that any remaining

Jac de Wet, the head of sales at PSG Wealth, responds:

You can use your age as a guide to growing assets. A rough rule of thumb is taking 100 as the age to which you will live and deducting your current age from it. The result is the percentage of exposure you should have to equities. So, at age 40, for example, you should have 60% in equities; at age 60, you should have 40% in equities; and so on. This method helps to manage risk, because you can’t afford a 20% market crash at the age of 70, but at age 45 you have time to recover more easily.

Speak to a financial adviser for advice tailored to your needs, because it’s best to have investments that are suitable for your exact circumstances.