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Have you considered topping up your RA before the end of the tax year.

Have you considered topping up your RA before the end of the tax year.


The South African Revenue Service (SARS) wants to help you pay for your retirement. The way in which they do this is by offering generous tax deductions when you make contributions to your retirement annuity (RA), pension or provident fund. On 1 March 2016, the tax deductions for retirement savings increased from 15% to 27.5% - which means you can now save more for retirement and get back more from SARS.


What else has changed?

You are now able to deduct your contributions to all retirement funds, with the maximum tax deduction you may make in a tax year limited to the greater of 27.5% of taxable income or remuneration, subject to an annual ceiling of R350 000. Contributions above this limit made directly by your employer are also now taxable as a fringe benefit in your hands.

If you contribute more than the limits, your extra after-tax contributions can be used to increase the value of any tax-free lump sum you take before or at retirement or to reduce the taxable portion of your living annuity income in retirement. Excess contributions in one year can also be carried over and deducted in the next year.

Remember that even if you are a member of company pension or provident scheme you can set up a retirement annuity to supplement your existing contributions.


Why should you consider saving more than 15%?

You may be wondering what’s in it for you, especially as saving more means less disposable income today. The important thing to remember is that retirement money is still your money, even if you can’t spend it immediately. A well-researched rule of thumb is that a retirement income of 75% of your final salary just before you retire will allow you to live comfortably during retirement. You may think that you do not need to save a lot of money now in order to achieve this goal, as retirement is so far away. However, assuming a reasonable rate of return, a 30-year old who has not yet started saving for retirement needs to save about 22% of their salary to retire comfortably. This percentage increases to 30% for a 35-year old starting to save. It is never too late to start saving for retirement, but the older you start, the more you need to save to be able to retire comfortably.



 Other things to consider

Like most countries, South Africa has a progressive personal tax regime. Our tax rates put a heavier burden for paying tax on those who should be able to afford it best, the highest earners. If you are earning above the highest tax bracket, you will save 41% in tax on an extra rand saved in a retirement fund, as long as it is under the annual rand cap on deductions. Whilst not everyone can afford to save 27.5% of their income towards retirement, the more you save the better your position will be in retirement.



 If you are planning to make use of the tax concessions for this tax year by starting a new retirement annuity, or by making an additional contribution to an existing account, please make sure we receive your instruction well in advance of the 28 February deadline.




Source: Carrie Furmam, tax specialist, Allan Gray


The contents of this article are sourced from third parties.There is no warranty of any kind, expressed or implied, regarding the information or any aspect of this article. We shall not be responsible for and disclaim liability for any loss, damage (whether direct or consequential) or expense of any nature whatsoever, which may be suffered as a result of, or attributable to, the use or reliance upon the information provided in this newsletter

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