IT’S TAX DEDUCTIBLE!
But why is that important? (Other than providing less money for Zuma and his troop to squander as they please).
- You pay less tax – If you earn R20,000pm you owe SARS R2797.85pm or R33,574.20pa. If you contributed R1,000pm to an RA your tax drops to R2537.85, a saving of R260pm or R3,120pa.
- You can invest more for the same amount – Based on the same assumptions as above, let’s say the most you could afford to invest is R1,000pm. If you contributed this to an RA and received the tax deduction of R260, this could be used for a second investment such as schooling, emergency account or holiday fund.
Tax works on a sliding scale I.e. the more you earn the higher the rate, which is applied to the last rand you earned. For someone earning R20,000pm this rate is 26%. If you earn over R60,000pm the rate is 41%, which means your tax deduction is even greater (R410 for every R1000 invested).
What are some of the other benefits of an RA?
- It’s completely protected from creditors. That means if you ever run into financial trouble, your investment is safe.
- Growth within the investment is tax free. If you invest in an Endowment, Unit Trust and Retirement Annuity using exactly the same funds the RA will be worth more at the end of the day.
What else do you need to know?
- The maximum you can contribute to all your Retirement Funds combined is 27.5% of your taxable income. What this means is, if for example you are contributing 10% to a Pension Fund, you can only contribute a further 17.5% to an RA. If you are not a member of a Pension or Provident Fund you can contribute the full 27.5% to your RA. Realistically not many people can save this much anyway but do what you can!
- Different Investment Companies have different minimum contribution limits. Allan Gray for example have a minimum monthly investment limit of R500 or lump sum of R20,000.
- You cannot access the money before the age of 55. This investment is intended for retirement! Any time after 55 you may take one third in cash. Currently the first R500,000 is tax free with the balance being taxed on a sliding scale. With the other two thirds you are expected to “purchase” your pension.
- You can transfer your RA to another Investment Company if you want. This is called a Section 14 Transfer and is especially useful if you have a number of small RA’s with various companies. It is important to first get an “S14 transfer quote” as some companies may charge a penalty.
- Look out for “committed” investment periods. There are still a number of product providers paying big upfront commissions to Financial Advisors for locking the client into an investment term. If for whatever reason you want to stop or reduce your contribution you end up being penalised. Even though you can’t access the money before 55, you still want the flexibility to manage your contributions as your situation dictates.
- When choosing the underlying funds you need to ensure that they comply with Regulation 28. This effectively governs the amount of “risk” you can take through exposure to local and offshore markets.
Deny SARS and pay yourself first! Increase your existing Retirement Annuity or start one today – just send us a message in the sidebar, it’s that easy. At the end of the day – how big would you like your piece of the pie to be?
– Flagstone is an Independent Financial Services Provider (FSP 30231) and is able to assist – regardless of where your existing investments are held.Zoom Kobe XII ZK12
