It is the last month of the tax year and Retirement Annuity (RA) top-up time has officially arrived. It is recommended that investors take full advantage of the tax-deductible benefits that their respective retirement annuities offer.
The new tax year commences on 1 March 2020, giving you about a month to make any additional ad hoc payments into your RA(s) or to open up a new RA investment if you haven’t already done so.
For those new to the game, an RA is an individual pension fund – which can be held in addition to an employer fund – that allows people who are not part of a group scheme or want additional savings, to enjoy the benefits of investing in a retirement fund.
An RA is more than just a disciplined savings plan, and it offers many advantages to individuals, both pre and post-retirement.
Under current retirement legislation, contributions to RA products are tax-deductible up to the lower of R350,000 per annum, or 27.5% of the greater of remuneration or taxable income including any taxable capital gain but before the deduction for donations.
RAs also offer other tax benefits at retirement. When you retire from an RA (after the age of 55), up to one-third of your retirement fund value may be taken in cash, with the first R500,000 of this value being tax-free. Any amount above that will be taxable by the marginal tax rate applicable to the individual, or to the maximum of 45%.
An RA is also not subject to Capital Gains Tax (CGT), and for RAs that are predominantly invested in equities, there is no tax payable on realised capital gains, and no tax will be withheld on dividend income.
Furthermore, if you contribute more than the maximum tax-deductible amount in a tax year towards an RA, the amount that exceeds the limit can be claimed in future years. Any excess may be carried forward, and any excess contributions which have not been offset by the time you retire may be added to the tax-free portion of the lump sum received at the age of 55.
The tax benefits seem endless, but it should not be the only consideration in an investment decision or in an overall financial strategy. Speak to us at Summa; we will help you decide which type of RA is best suited to you.
This must be done as soon as possible, (before the end of February 2020), to qualify as a 2019-2020 tax deduction. Because deadlines for receipt of contributions to these products vary between institutions, we advise that transactions are completed before Friday 21 February to ensure you don’t miss out.