Martin Riekert, Chief Commercial Officer at Momentum Investments

Everyone’s journey is unique, but some goals, like growing your wealth and a comfortable retirement, are important to everyone.

Your decision to start saving and investing for your retirement is possibly one of the most important you’ll ever make. You want to be financially independent when you retire, and by planning for your retirement today, you increase your chances of maintaining your standard of living in retirement.

However, most financial decisions you make have a tax impact. Tax can be complicated and confusing, and for most people, it is a sensitive and personal subject they choose to avoid. But with a few smart moves, especially when planning for financial independence or retirement, you can benefit significantly from tax incentives and increase the probability of achieving your investment goals.

You can use two tax-efficient ways to create wealth over time and help you provide for your retirement: a retirement annuity and a tax-free investment (also known as a tax-free savings account). If you are already using one or both, you can invest more into them, within the limits, to make full use of the available tax opportunities.

Top-up your retirement annuity

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 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 2026. In addition to the tax break you get on the money you invest, you also enjoy tax-free growth in your retirement fund where 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) before 28 February 2026.

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 science of success is to focus on using 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.

So don’t avoid tax – avoid paying too much of it by being tax-savvy.

Discuss your options with your financial adviser so that you can take advantage of the tax incentives available to all taxpayers every year. In the process, you can also improve the probability of achieving your investment goals.

ENDS