29 January 2018. Article by Ashley Horwitz
Your retirement annuity (RA) presents you with a very attractive tax benefit. You can boost your total retirement savings and at the same time receive a nifty rebate from SARS in this tax year.
From 1 March 2016, the deduction cap for retirement fund contributions increased to 27.5% of the greater of remuneration or taxable income. This rate applies to the aggregate of contributions made to an individual’s Pension, Provident and Retirement Annuity funds. Presently.
The annual deduction cap is R350,000 (including the cost of risk benefits). Individuals who contribute more in any one year can carry forward any unclaimed amount and deduct these from tax in subsequent years, subject to the deduction limits in those years.
At present, most group / company Pension and Provident Funds only allow for a member to contribute up to between 15% and 20% to their retirement fund.
This effectively gives you the opportunity to enhance your total retirement capital at a discount.
Imagine, a self-employed investor who earns R35 000 per month. This investor’s maximum tax deductible RA contribution is R9 625 per month, or R115 500 per year. As the first R115 500 contributed to his or her RA in the current tax year is tax-deductible, it potentially provides for a tax rebate of R38 115 at the investor’s marginal tax rate of 33%. And, if reinvested into the RA, this additional amount will in itself be carried forward for assessment in the coming tax year.
Other benefits to having your savings held in a Retirement Annuity include:
- You have an opportunity to catch up on your Retirement Planning Shortfall through a lump sum contribution. This will allow you to boost your income in Retirement.
- The Investment Income within your Retirement Annuity is not taxed. This could lead to an investment boost of around 33% over a 20 year period.
- Any money invested into your Retirement Annuity is protected from creditors, should you be declaresd insolvent.
- On your death, your Retirement Annuity will be free of Estate Duty Taxes.
With only one month left of the current tax year, it may well be worth making that additional contribution to your RA especially if you recently received a year-end bonus or a 13th cheque, had additional non-retirement funding income that needs to be effectively invested, or have some money over from emergency savings that you set aside for the year and didn’t use.
Please feel free to Get In Touch with us should you wish to discuss this or any other financial planning queries that you may have.