Investing in an RA provides a disciplined way of saving and RA’s are tax-deductible up to a certain maximum and can provide great tax savings. The end of the tax year is a good time to maximise the tax breaks SARS allows on retirement annuities (RAs) by topping up with additional contributions, perhaps that year-end bonus! If you have contributed less than the maximum tax-deductible amount to an RA, you can use any additional cash to top up your RA and enjoy the full tax benefit.
Each year, you’re allowed a minimum tax deduction of R1 750. Alternatively, you can contribute the greater of R3 500 less your allowable pension fund contribution; or 15% of your non-retirement funding income, to an RA tax-free. Any additional payments (over the 15% limit) can also be carried forward and offset against your future taxable income.
If you are self-employed, or your employer does not offer a pension or provident fund, your income is considered ‘non-retirement funding’. If you are a member of your employer’s pension/provident fund, your income is known as ‘retirement funding income’. Those who get an income is solely from non-retirement funding income can make the most of an RA especially when it comes to tax breaks at year end. If you don’t have an RA, consider starting one now to maximise these benefits.