Around this time of the year, we would like to remind you to consider topping up your retirement annuity fund and tax-free investment. Retirement Annuity According to the current legislation, you may contribute up to 27.5% of your taxable income (strictly speaking, non-retirement funding income) to a retirement annuity fund and enjoy tax deductions. As 28 February is the end of the tax year, you must calculate and pay the additional amount to your retirement annuity prior to this date, in order to qualify for tax deductions and tax refunds. Below is an example of topping up your retirement annuity: Ms Rama has a monthly salary of R80,000. In December she received a bonus of R100,000. Every month she contributes R5,000 to a personal retirement annuity fund. Her annual income is then R80,000*12 + R100,000 = R1,060,000. The maximum tax-deductible contribution to retirement annuity is R1,060,000 * 27.5% = R291,500. Over the year she has contributed the following to a retirement annuity fund: R5,000 * 12 = R60,000 The additional amount she may top up in his retirement annuity (RA) is R291,500 Less R60,000 = R231,500 Tax-free investment You may contribute up to R36,000 to a tax-free savings account in a tax year. You must calculate how much you have contributed so far since 1 March 2020 and pay the additional amount to your tax-free savings account prior to 28 February, in order to make use of current tax year's allowance. You can also start a tax-free investment in the name of your children. To top up your retirement annuity or tax-free investment, please contact service@daberistic.com
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Around this time of the year, we would like to remind you to consider topping up your retirement annuity fund. According to the current legislation, you may contribute up to 27.5% of your taxable income (strictly speaking, non-retirement funding income) to a retirement annuity fund and enjoy tax deductions. As 28 February is the end of the tax year, you must calculate and pay the additional amount to your retirement annuity prior to this date, in order to qualify for tax deductions and tax refunds. Below is an example of topping up your retirement annuity: Mr Jackson has a monthly salary of R50,000. In December he received a bonus of R100,000. Every month he contributes R3,000 to a personal retirement annuity fund. His annual income is then R50,000*12 + R100,000 = R700,000. The maximum tax-deductible contribution to retirement annuity is R700,000 * 27.5% = R192,500. Over the year he has contributed the following to a retirement annuity fund: R3,000 * 12 = R36,000 The additional amount he may top up in his retirement annuity (RA) is R192,500 Less R36,000 R156,500 To top up your retirement please contact invest@daberistic.com Around this time of the year, we would like to remind you to consider topping up your retirement annuity fund, or contribute to a tax-free savings account. It's perfectly legal. Save money for yourself, instead of giving to the taxman. Such tax savings can amount to tens of thousands of Rands. Retirement Annuity According to the current legislation, you may contribute up to 27.5% of your taxable income to a retirement annuity fund and enjoy tax deductions. As 28 February is the end of the tax year, you must calculate and pay the additional amount to your retirement annuity prior to this date, in order to qualify for tax deductions and tax refunds. Below is an example of topping up your retirement annuity: Mr Mabasa has a monthly salary of R50,000. In December he received a bonus of R100,000. Every month he contributes R3,000 to a personal retirement annuity fund. His annual income is then R50,000*12 + R100,000 = R700,000. The maximum tax-deductible contribution to retirement annuity is R700,000 * 27.5% = R192,500. Over the year he has contributed the following to a retirement annuity fund: R3,000 * 12 = R36,000 The additional amount he may top up in his retirement annuity (RA) is R192,500 - R36,000 = R156,500 He can look to get a tax refund of R192,500 * 39% = R75,075. Attached is a document from Allan Gray summarising the differences between an RA and a tax-free investment. minimise-your-taxable-income_maximise-your-tax-savings---ra_tfi.pdf Speak to your Financial Advisor if you would like to exercise one of the two options, or email invest@daberistic.com. Around this time of the year, we would like to remind you to consider topping up your retirement annuity fund. Discovery is one of our preferred providers for Retirement annuity and it makes your life easier for you by:
Your contribution must reach Discovery by 28 February 2018 for your investment to go through before the end of the tax year. For more information on the Discovery Retirement Plans, please respond to this mail so that I can arrange an appointment with you. To top your retirement annuity , please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Discovery Never underestimate the power of being clued up and learning the basics of retirement speak. These terms should get you off to a good start: Provident Fund If you are working for a company, you’ve probably heard of this one. It is a compulsory saving tool set up by your employer. Your contribution is taxed, but your employer’s isn’t, so often the employer makes the contribution on the employee’s behalf. At retirement, the fund’s benefits are fully available in cash once the tax has been paid. Retirement Annuity This is similar to a provident fund but is a retirement-saving vehicle largely used by self-employed individuals or those without a provident fund option at work. There is a tax saving, as contributions are subtracted from your gross annual income before tax is calculated. At retirement, only a third of the capital can be taken as a lump sum. The remaining two thirds must be used to purchase a compulsory annuity product such as an investment – linked living annuity or life annuity. Fund benefits can only be accessed at retirement (usually after the age of 55). Preservation Fund If you’re planning to change jobs, this is definitely one to remember. Preservation funds are literally meant to preserve capital. There are two types of preservation funds: a pension preservation fund and a provident preservation fund. If you belong to a pension fund: On resignation, you can transfer your funds to a preservation pension fund. No tax is paid when the money is transferred and the fund allows for a single withdrawal of any capital prior to retirement. At retirement, a maximum of one third of your capital can be taken as a cash lump sum, while the remaining two thirds must be used to purchase an annuity. If you belong to a provident fund: On resignation, you can transfer your funds to a provident preservation fund. No tax is paid when your money is transferred, and the fund allows for a single withdrawal of any capital sum prior to retirement. At retirement, the total capital can be taken as a lump sum, or you can use the cash to purchase an annuity. Defined-benefit retirement fund This is a traditional pension fund that considers, among other factors, the number of years you have been part of the fund and your salary at retirement, to define the benefits accrued. The advantages are that you don’t take on the investment risk, and you can calculate the exact amount you receive at retirement (that is a percentage of your final salary). The downside is that your pension may not keep pace with inflation because increases in contributions and benefits are at the discretion of the fund’s trustees. There are not many of these funds around today because most companies have moved over to defined contribution funds over the past few decades. Defined contribution retirement fund Contributions to this fund are paid by the employer and the member but, unlike a defined benefit retirement fund, the amount of money you receive on retirement is not guaranteed. The member decides where the fund invests their contributions and takes on the full investment risk. If the markets yield good returns, you may have a much higher pension at retirement but if they do poorly, you could stand to lose. To get an appointment with our Financial advisor to discuss the different options, please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Sanlam Many people have negative perceptions about retirement annuity. I must state categorically that this is a powerful tool in any investor’s financial and tax planning. A retirement annuity is a long-term investment structure for building retirement savings, either on a recurring basis or by making a lump sum investment. A retirement annuity offers significant tax advantages to people who are committed to investing their money until they are at least 55 years old. A portion of your retirement annuity contributions is tax deductible. The current legislation allows you contributions to retirement funds of up to 27.5% of your taxable income as tax deduction, subject to a maximum of R350,000 in a tax year. All your investment growth, including interest, dividends and capital gains within a retirement annuity is tax free.
At retirement age, you may withdraw a portion of your retirement annuity account tax free. Currently the first R500,000 lump sum benefit is tax free. The balance of the account will be used to purchase a fixed annuity or living annuity, to give you a monthly income. You can select the underlying investment portfolios in a retirement annuity. These investment portfolios are compliant with Regulation 28 of the Pension Funds Act, to ensure your money is invested prudently across a number of asset classes. Before retirement, there are three scenarios where you may access money in your retirement annuity account: In the event of your death, the money is paid out to your beneficiary. In the event of ill health and you are unable to work, you lodge a claim for a disability benefit – and not a withdrawal benefit – from your retirement fund. When you emigrate or when you leave South Africa due to an expired work visa, you can withdraw the full value in cash (subject to tax). There are two types of retirement annuity products: Life assurer retirement annuity and unit trust retirement annuity. With a life assurer retirement annuity, you enter into a contract to commit to pay contributions until your selected retirement age. Should you reduce or stop contributions during the first half of the term, you will pay a penalty charge, which reduces your retirement annuity account value. Some life assurers will reward you with bonuses paid into your account for being disciplined with your monthly contributions over the term of the contract. While a life assurer retirement annuity is rigid, a unit trust retirement annuity gives you flexibility. You may increase, reduce or stop contributions at any time without penalties. You may wish to consider investing in a retirement annuity fund if:
A word of advice: If compound interest is the first Financial Wonder, then I consider retirement annuity to be the second Financial Wonder in South Africa. Since 1 March 2011, special tax rates apply to severance benefits, based on the retirement lump sum tax table. This means that the first R500 000 is not subject to tax, the next R200 000 is taxed at 18%, the subsequent R350 000 at 27% and all amounts above R1 050 000 at 36%. Leave pay and pro-rata bonuses that are paid at that time do not form part of a severance benefit and are subject to normal income tax.
To qualify for this special “severance” tax rate, the employer must pay you a lump sum as a result of your employment having been, amongst other things, terminated or lost, for example if:
It is important to understand that this severance benefit is, for tax purposes, treated as a retirement lump sum payment. This has the following consequences:
Retrenchment benefits.The retrenchment benefit refers to the withdrawal from your employer’s retirement fund at retrenchment (as per the above criteria). Such a retrenchment benefit is also taxed per the retirement lump sum tax table, again subject to the cumulative value of any previous retirement fund withdrawals made. Important caveat: You can transfer this benefit to a preservation fund, but if you do, it loses its “identity” as a retrenchment benefit. Although you will be entitled to make one full or partial withdrawal from the preservation fund before retirement (earliest age 55), this will be taxed as a normal withdrawal from the preservation fund, per the withdrawal lump sum tax table: the first R25 000 is not taxed, the balance to R660 000 is taxed at 18%, the balance to R990 000 at 27% and the remainder at 36%. This is an important consideration! If you choose to preserve your retrenchment benefit with the intention of accessing this money before retirement, you lose out on the-tax free benefit you could have enjoyed, either at the time of retrenchment or at retirement. To get advise on your severance benefit, please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: 10x |
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