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A husband and wife look at each other smiling while reviewing their tax and retirement and investment goals.

Don’t avoid tax – avoid paying too much of it

Most financial decisions you make have a tax impact. Although tax can be complicated, with a few smart moves, you can benefit significantly from tax incentives, especially when planning for retirement. In the process, you can also improve the probability of achieving your investment goals.

You can provide for your retirement, and be tax-savvy, by using a retirement fund and a tax-free investment (also known as a tax-free savings account).

Top-up your retirement fund

Every tax year, you can claim a tax deduction for the money you invest in a retirement fund. To make the most of this deduction, you can invest up to 27,5% of your taxable income or salary before any deductions are made, whichever is higher, subject to a maximum of R350 000.

You can do this whether you are self-employed or earning a salary, but not yet contributing the full amount to your employer’s retirement fund. If your contributions are more than the maximum, you won’t be able to claim back the amounts above the maximum in that tax year. You can carry over contributions to the next tax year and claim it then, or from tax year to tax year until you retire.

If you have not yet used the full tax deduction available to you for the year, you can make an additional lump sum payment to your retirement annuity before the tax year ends on 28 February 2021.

In addition to the tax break you get on the money you invest, you also enjoy tax-free growth in your retirement fund – you don’t pay income tax, dividends tax or capital gains tax while the money is growing.

If you have not yet maximised the 27,5% benefit with your regular contributions, add a lump sum to your retirement annuity (RA) or pension fund before 28 February 2021.

Top-up your tax-free investment

Although you don’t get a tax deduction for money you invest in a tax-free investment, you still enjoy tax-free growth. And you won’t pay any tax on the proceeds when you decide to take money out of the investment.

You can invest up to R36 000 every tax year in a tax-free investment, limited to R500 000 over your lifetime.

The secret is to make sure that you use these tax incentives optimally every year and consistently over time. By doing this you can reduce the impact of tax on your financial plan and increase the growth potential of your investments.

Discuss your options with your financial adviser so that you can reap the full benefits of tax incentives available to all taxpayers every year.


Need Advice?

Have you maximised your tax benefits for this tax year? Speak to your financial adviser now and take advantage of your tax benefits for the tax year before 28 February 2021. If you don’t have an adviser but would like to speak to one, find one here.

In case you missed it

Find all our latest and previous newsletters, all under one, easy-to-find space, for your convenience.

Retirement Funds Trustee Newsletter 2019

Retirement Funds Trustee Newsletter 2018

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