Skip to content Skip to footer

Tax Benefits of Retirement Annuity Top-Ups

South Africans have barely made it into 2022 financially sound. As a nation we have survived 22 months in lockdown, the 2021 festive season, and 2022’s Janu-worries. We have proven ourselves to be strong and resilient, but here comes SARS to test us once again.

The tax year ends in February, the month of love, when any extra money you may have tucked away will become the object of the tax man’s affection. Unless you find a safe place to invest it. That safe place may just be your retirement annuity. Retirement annuities serve as investment platforms, where an individual invests monies until retirement, and is then able to draw an income for the rest of their lifetime. The main benefit of such an investment is clear – lifetime income.

One advantage of retirement annuities is the inherent flexibility. Investments can be made as a single lumpsum, or as regular payments over time. The annuity may be set up any time before retirement, allowing for years of steady investing, a large investment at one time, and anything in between. The flexibility of this platform is advantageous, but can be complex to understand, so it is best to discuss the various options with your financial advisor.

Another advantage of retirement annuities is the option to top up a retirement annuity, and leverage the associated tax deduction to work in your favour. As the tax year end approaches, any additional monies in your possession are open to taxation. That is unless you move those monies into your retirement annuity via the top up function. Yes, the monies are no longer available to you under either option, but monies taken by SARS are lost, whereas monies invested in your retirement annuity are kept aside for you until retirement. So, although the top up funds are gone for now, it will become part of your future financial freedom. It is important to note that there is a limit on retirement contributions:

  • Up to 27.5% of taxable income may be invested into your retirement annuity annually, or a maximum of R350 000.
  • The maximum limit is cumulative, meaning the total applies to the combination of all your retirement fund contributions.
  • Individual retirement annuities and occupational retirement funds are seen as components of an overall retirement fund contribution.

So, what does all of this mean for you? It means that, unless you have already reached your maximum retirement annuity contribution for the 2021/2022 tax year, you have an opportunity to put more money aside through your retirement annuity top up. Your financial advisor will be able to calculate what top up you have available to you. But remember, you only have until 28 February before SARS makes its move on your money.

Leave a comment

Morebo Financial Solutions (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act. (No. 2409)
Morebo Wealth (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act (no. 2409)
Morebo Brokerage (Pty) Ltd is an Authorised Financial Services Provider in terms of the FAIS Act (no. 48360)

© 2020 Morebo. All Rights Reserved. Site design by GluePages.