• RA and tax-free investments before 29 February 2020

    By February 10, 2020Financial Planning

    The South African Revenue Service (SARS) has put several tax incentives in place to encourage us to save more for our retirement and other long-term goals. As the end of the tax year is approaching, you may consider contributing to a retirement annuity (RA) or tax-free investment before 29 February 2020. It is important to remember that when you retire out of an RA, only one-third of the proceeds may be taken in cash, of which a maximum of R500 000 will be 100% tax-free.

    The balance of this one-third will be taxable and the remaining two-thirds must be invested in a Living or Life Annuity. The contentious issue of prescribed assets, where the government has a say in how the funds in your RA or Life/Living Annuity may be invested, should always be considered. Please contact JWR on 021- 914 0818 to determine if you would benefit from further contributions to your retirement annuity or tax free investment before 20 February.

    The benefits of investing in a retirement annuity (RA):

    •  Your taxable income is reduced so that you pay less tax now, while your retirement savings increase.
    • While you will still pay tax after your retirement, it will most likely be at a lower tax rate.
    • You will enjoy the full benefit of compound interest as the growth in your RA is tax-free.

    Things to keep in mind:

    •  You may only access the funds in your RA from age 55 onwards (except in certain specific circumstances). This is to safeguard your retirement money.
    • Your contributions are tax-deductible. This deduction is limited to 27,5% of the greater of your taxable income or remuneration, capped at R350 000 per tax year. The tax benefit for contributions in excess of these amounts may be rolled over to the following tax year.

    Tax-free investment (TFI):

    • Maximises the growth on your investment as the interest, capital gains and dividends you earn are completely tax-free.
    • Your investment can be used for estate planning, meaning it can be paid to your beneficiaries immediately and there are no executor fees.

    Things to keep in mind:

    • You can invest R33 000 per tax year up to a lifetime maximum of R500 000. If you contribute more than these maximums, you will incur penalties.
    • Although you can access your money, you cannot re-contribute amounts you have withdrawn. This is because your contribution limits remain the same after a withdrawal.