The 2017/2018 year of assessment is about to come to an end. If you haven’t maximised your annual 27.5% tax deduction of either your taxable income or remuneration, now’s the time.
A productive way to do this is through a retirement annuity, or RA. Essentially, this financial solution pays out income after a certain amount of time and, so, is a great retirement strategy. Here’s how it works: you put money into the annuity throughout a number of years, and then it makes payments to you on a future date or series of dates.
Your income from your RA can be paid out monthly, quarterly, annually or even in one lump-sum payment. The size of your payments are determined by a number of factors, including the length of time you spend investing into the retirement annuity.
There are many reasons to invest in an RA, the most prominent being the attainment of a secure retirement. But another attractive benefit is the fact that the more money you put in, the more you save on tax. Take this list of advantages:
Up to 27.5% of your total earnings – with a maximum of R350 000 – qualify for an annual tax deduction
All investment growth is tax free – there is no income tax, no Capital Gains tax and no dividends tax. This contributes to the compounding of your returns over a longer period of time
Up to R500 000 of a lump sum can be taken out free upon retirement. After that, amounts are favourably taxed on a sliding income scale
RAs are an automatic way of saving; no withdrawals are allowed until a retirement age of at least 55. This means, your investment will benefit from the power of compound growth if it is left to grow for a reasonable amount of time. Remember, there is no maximum retirement age.
In addition to the above, RAs also offer:
Protection from creditors: Except in limited cases, creditors can’t lay claim to funds in your RA
Flexibility: When you retire, you can transfer funds from your RA to an income-generating annuity without paying tax on the amount. You also won’t pay tax on the subsequent investment growth
Long-term benefits: Although you will pay income tax on any income you receive once you retire, your marginal tax rate should be much lower than it was when you were employed.
At Standard Bank, we know that each individual can have a variety of unique ‘nexts’, but one is always universal: reaching a secure and happy retirement.
In uncertain times the value of good advice and a good plan are even more important. Take the first step: