Tax just got cancelled

February is retirement annuity and tax-free savings top-up season

 

Topping up your Retirement Annuity (“RA”) or Tax-Free Savings Account (“TFSA”) before the new tax season has some major financial benefits. Here are 5:

  1. Your RA is protected from insolvency.
  2. Upon death, an RA is not subject to estate duty, provided no lump sum is taken.
  3. Individuals can include RA contributions to their tax return and receive a rebate from SARS.
  4. You can top-up your RA and/or TFSA to the limits before the end of the tax year.
  5. Your tax-free savings account allows you to save up to R36 000 per year, tax-free.

We made short small video below that highlights some key differences between an RA and TFSA:

Let us look at the differences between these two tax-efficient options:

What is it?

Retirement Annuity

A vehicle designed specifically to save for retirement where access to savings is only allowed from age 55.

Tax-Free Savings Account

A tax efficient savings vehicle introduced by government to encourage people to save.

Are there any specific tax benefits?

Retirement Annuity

Contributions are tax deductible and protected from creditors.

Tax-Free Savings Account

Yes. No tax on interest or other income, no dividends tax and no capital gains tax.

Are there any contribution limits?

Retirement Annuity

Yes. You can contribute up to 27.5% of taxable income capped at R350 000 per financial year.

Tax-Free Savings Account

Yes. R36 000 per financial year or R500 000 over lifetime.

Can I withdraw my money?

Retirement Annuity

Only 1/3 at retirement. At least 2/3 must go towards an annuity. If full cash value at retirement is below R247 500, you are allowed a full withdrawal.

Tax-Free Savings Account

Yes.

What are the estate planning benefits?

Retirement Annuity

You may nominate beneficiaries so it does not form part of your estate.

Tax-Free Savings Account

Forms part of your estate.

Chat to us online for assistance with opening a new account or to top-up your existing investment account. Alternatively, fill in the form below for our client services team to call you back:

    What does the financial advisor say:

    February is the beginning of a new tax-year

    January, often referred to as “Januworry” has come to an end.  For many, February is the start to their personal financial new year.  January also saw the peak of the COVID-19 infections in many provinces and the hope that the vaccines will be delivered before our winter arrives.  Once again, the focus on financial health comes into the spotlight where many are looking at ways of creating long-term financial security.

    February is also the month for the end of the tax year for individuals and the Budget Speech.  Many clients enquire as to how they can take advantage of the annual tax incentives offered by the South African Revenue Service (SARS).

    Two such products that provide annual tax incentives are a Retirement Annuity and a Tax Free Savings Account.

    The Retirement Annuity (RA) is an investment product that can be used to provide long term savings towards retirement or it can be used to bolster current retirement savings.  The Retirement Annuity offers tax efficiency through reducing taxable income by increasing your retirement savings.  Contributions to Retirement Annuities are tax deductible, up to a limit of 27.5% of your income and capped at R350 000 per year.  This limit is inclusive of any contributions made by your company such as a pension or provident fund and retirement annuities.  The returns you earn within your retirement annuity are tax free, which allows you the benefit of compound interest.

    Retirement Annuities can only be accessed from the age of 55 years (except in specific circumstances).  This is a long term savings vehicle specifically for your retirement and is a great product to make sure you don’t draw from your future retirement savings for immediate short term needs.

    When you retire, your Retirement Annuity will provide you with access to one third of its value in cash (tax applicable according to SARS retirement tax table) and the remaining two thirds will be used to purchase a guaranteed income or pension.  The income will be subject to income tax.

    Tax Free Savings Accounts offer the investor the opportunity to save towards a specific goal or to bolster current retirement savings.  Investing in a Tax Free Savings Account, the investor is able to maximize the growth on their investments as the growth is free of capital gains and dividends tax.  The annual investment is R36 000 per tax year up to a lifetime maximum of R500 000.  If you contribute more than the R36 000 per tax year, you will incur penalties.  The tax-free savings account allows the investor access to their money but one cannot recontribute the money that has been withdrawn.  If used as a long term investment, the tax-free savings account can be used to bolster your retirement savings.

    We are currently experiencing uncertain times, both in our personal and professional lives, brought about by the pandemic, but it is also a good time to review financial goals.  This allows for proper financial plans to be put into place to achieve our desired goals and become more aware of our financial needs for the future.  If this all seems overwhelming, consult with a professional financial advisor who can assist you in drawing up your financial plan and providing the financial products that can help you achieve your goals.  So, if January was just about surviving, make the rest of the year your conscious financial planning year.