16 things you might not know about your retirement and tax-free savings

These points are of a general nature and may not be specific to your needs. They are seen as general tips provided by a financial advisor within the 27four network. Financial planning requires a deeper understanding of your financial needs and thus recommend a suitable financial plan specific to your needs. If you require the help of a financial advisor you can get in touch with our client services team who will be able to assist you.

 

  1. The main benefit of a Tax-Free Savings Account is that no tax is levied on the investment. This means you do not pay interest on the growth, and there is no income tax, capital gains tax or dividends tax.
  2. You can invest R33 000 per year in a Tax-Free Savings Account. However, you don’t have to invest a lump sum. You are able to invest up to R2 750 monthly, tax-free.
  3. It is not only banks that provide Tax-Free Savings Accounts. Asset management firms such as 27four also offer Tax-Free Savings Accounts.
  4. You can withdraw from a Tax-Free Savings Account at any time.
  5. The ultimate purpose of a Retirement Annuity is to enhance retirement savings.
  6. A Retirement Annuity cannot be ceded as security for debts which safeguards your investment.
  7. You can only access 1/3 from an Retirement Annuity in cash and only at age 55.
  8. For those with high marginal tax rates it is advantageous to utilise the maximum allowable contributions to your Retirement Annuity first, and then start maximising your Tax-Free Savings Account contributions.
  9. It is never too late to buy a Retirement Annuity. You do not have to “retire” from a Retirement Annuity investment when you retire from your employment. You can retire from a Retirement Annuity at any age.
  10. The growth (interest, dividends) in the Retirement Annuity is not subject to tax. You can stop contributing to the Retirement Annuity at any time and leave it to grow.
  11. South Africans, with their poor savings culture, should look to tax-efficient savings vehicles to encourage more saving.  The national average savings rate is 3%, while the household debt-to-income ratio is a staggering 74.4%.
  12. Both a Retirement Annuity and a Tax-Free Savings Account offer clients an effective way of saving for the future. They are extremely tax efficient, have a number of investment options and should both be considered in any client’s portfolio.
  13. In choosing Retirement Annuity or Tax-Free Savings Account above the other, you must evaluate the degree to which you value the flexibility of the Tax-Free Savings Account versus the higher level of pre-tax saving offered by the Retirement Annuity.
  14. The effect of minimal or no taxes becomes much more apparent the longer the investment time horizon. If your intention is to save for retirement using any one of these two products, make sure you can make the necessary commitment, and if not, then the Retirement Annuity is your best option.
  15. A major difference between a Retirement Annuity and Tax-Free Savings Account is the fact that your contributions to a Retirement Annuity are tax-deductible (up to certain limits).
  16. Investments in a Retirement Annuity need to be Regulation 28 compliant while investments in a Tax-Free Savings Account are free from these type of constraints.

 

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