Kobus Kunz – Head of Consulting, Efficient Benefit Consulting

In our previous instalment, we discussed the four different retirement vehicles that you can include in your comprehensive retirement plan. In Part 3, we will look at the tax implications of your retirement funds.

Contributions to retirement funds have been made readily available. However, the National Treasury implemented amendments into legislation to help guide fund members navigate through retirement. A person is allowed to contribute any amount to retirement funds, but only a maximum of 27.5% of the taxable income will be tax deductible, with a maximum of R350 000 per annum being tax deductible.

Any amounts that you withdraw from your fund pre-retirement will be taxed according to the withdrawal tax table.

Refer to our tax table below:

At retirement, you will be taxed according to the retirement withdrawal tax table. You are taxed less severely at retirement in comparison with pre-retirement to try and encourage you to not withdraw before you retire.

Refer to our tax table below:

At retirement, any of your remaining retirement funds (after cash withdrawal) can be transferred to a life/living annuity. What is the difference between a life and living annuity?

Life annuity

With a life annuity, you buy a fixed income until you pass away. When you pass away, the capital and the income also fall away.

Living annuity

With a living annuity, you are exposed to the markets and can take a minimum income of 2.5% per year of your retirement capital and a maximum income of 17.5% per year. When you pass away, you can leave the rest of your investment to your beneficiaries.

The income from both the life and living annuity will be taxed like a normal salary on the income tax tables.

In our last instalment, we look at the harsh reality of retirement in South Africa.

ENDS

Catch up on the series – see below…