Get money back from SARS

Top up your retirement annuity (RA) contributions before 28 February and get money back from SARS.

The purpose of an RA is to enable you to save for retirement in a tax-efficient manner. The higher your annual contribution towards an RA in any given tax year (up to the specified limit) the higher your tax benefit will be.

A percentage of your annual contribution towards an RA is tax deductible. You can therefore claim back a portion of your contribution from SARS, without any impact on the value of your investment. The reason for this benefit is that government wants to incentivise people to invest in their retirement, thereby lessening the financial burden on the state once people reach retirement age. It is currently estimated that only 6% of all South Africans can maintain their standard of living after retirement. An RA allows you to receive a stable monthly income once you reach retirement age.

The maximum tax deduction for all contributions to retirement annuity funds, pension funds and provident funds, is 27.5% of remuneration or taxable income (whichever is the greater). The annual maximum tax deduction limit for any of these retirement vehicles is R350 000. It is beneficial for taxpayers to calculate the maximum allowable deduction that they qualify for before the end of the tax year and to top up their RA contributions to get as close to this amount as they are able to.

Any amount of your contribution that exceeds the maximum allowable tax deduction amount in any given tax year can be carried over to subsequent years. This deferred tax benefit can be used to reduce the taxable portion of a lump sum payment when you retire, or to supplement your annuity payments in retirement.

Another benefit of an RA is that there is no taxation payable on the growth of your investment, thereby increasing your returns via the tax that you are saving.

Invest in a tax-free savings account

Once you have topped up your annual RA contribution, you may also want to consider investing in a tax-free savings account. The main benefit of a tax-free savings account is that, the same as with a retirement annuity, there is no taxation on the growth of your investment, which leads to increased returns.

An investment in a tax-free savings account is limited to a maximum amount of R36 000 per year and a lifetime limit of R500 000. While there is no taxation on the growth of your investment in a tax-free savings account, contributions are made from after tax funds and, unlike contributions to an RA, you do not receive a tax deduction for investing.

RA’s and tax-free savings accounts are both effective ways of saving for the future. They are extremely tax efficient, have several investment options and should both be considered in any investor’s portfolio.

Remember to top up your RA contributions and invest in a tax-free savings account before the 28th of February to receive the maximum tax benefit for the year.

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/advisor to take into account your particular investment objectives, financial situation and individual needs.