Retirement Annuities
We believe that the easiest and most effective tax-saving measure is through Retirement Annuity investment. It is important to check the level of your contributions, as the allowable deductions from taxable income are significant.
Points to consider are:
27.5% of remuneration or taxable income may be deducted by way of contributions to an approved pension, provident and retirement annuity up to a maximum of R350 000 per tax year. Invariably, if you are a member of an employer fund, there is a short-fall between what you and your employer contribute and the 27.5% cap. This can be made up via personal retirement annuity contributions.
If you are not a member of an employer fund then the whole 27.5% can be invested in a retirement annuity.
Any excess contributions over the annual cap may be carried over, used to enhance the tax free lump sum of R500 000 at retirement, or to reduce the taxable element of a living annuity.
Actual tax relief on RA contributions is significant. Depending on your tax bracket, you can save up to 45% of contributions in tax. Contributions can be regular payments or once off ad hoc payments, particularly where you are already making regular contributions but need to top up to obtain maximum tax relief.
A further significant tax benefit is gained through these retirement funds, as there is no income tax, dividends tax or capital gains tax on retirement fund investments.
Another significant advantage is that retirement fund benefits do not form part of a deceased estate. On the death of a member, benefits may be paid direct to a nominated beneficiary and are not subject to delays in the estate process.
Executors’ fees which can amount to 4% (including VAT) on assets in a deceased estate do not apply to retirement funds and neither does Estate Duty.
Finally, Retirement fund benefits are protected from creditors!
Don’t forget to check your spouse or partner’s situation, as all these advantages apply separately to all taxpayers.
Tax Free Investments
Besides the tax exemptions on interest earned (R23 800 for under 65 and R34,500 for over 65), there are also tax-free savings accounts and investments. The latter range from specifically designated tax-free savings accounts at banks to tax-free unit trust investments available through various asset managers.
South Africans with an identity number can currently invest up to R36 000 per annum (i.e., during any tax year) into the aforementioned accounts. There is, however, an overall limit of R500 000 in these tax free investments. This means that by using the annual allowance, the limit will be reached in 14 years.
Whilst an investor may withdraw from a tax free investment at any time, such withdrawn amounts may not then be reinvested at a later stage.
We do not believe that these tax free investments take the place of retirement annuities, as they don’t offer the same benefits. Instead they should be seen in isolation and perhaps offer solutions to other needs such as children’s education.
Contact Us
If you want to know more about how to maximise your retirement annuity investments and tax free savings, please contact your Maximus adviser. Alternatively, please speak to Ansie, Kamiela, Rani or Susan at our office: tel 011 656 2910.