YOUR MONEY: Transfers and TFSAs

Question:

I have half my tax-free savings in exchange traded funds (ETFs) and the other half in a cash-only tax-free savings account. With a time horizon to retirement of more than 20 years, I want to transfer my cash portion into an aggressive unit trust account. The bank has asked me to transfer the full amount into my cheque account to move the funds. They’ve assured me this will be seen as a transfer and not a withdrawal. Is this correct?

— Facebook Fat Wallet Community member

Answer:

The advice you have been given is wrong and the transfer will be seen as a withdrawal from your tax-free account, effectively reducing your lifetime limits. Say you’ve put in R150,000 over the years, your lifetime limit is now the remaining R350,000. If you withdraw the money, your lifetime limit will remain at the lower R350,000.

To transfer from a tax-free account, first open the new account you want to invest into. In your example, it’s a unit trust account. Then speak to both the new and old account managers and request a transfer between tax-free accounts. They will issue you with the relevant forms and they’ll effect the transfer without costing you your tax-free status.

In your case, you are moving from a cash account, so no sale is required. But if you are moving out of an account with either ETFs or unit trusts, you would need to sell these investments within the account and transfer cash out. This will not attract any tax, and it won’t affect your annual and lifetime limits.

— Simon Brown, Just One Lap

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