T-A-X… is a word we would all like to see banished from the earth. NO ONE likes to pay tax, but there are ways you can make tax work for you, especially when you are saving for retirement.
A tax year comes to a close at the end of February each year. So, you have more than enough time to introduce some clever strategies to your 2018/19 financial plan that could save you some tax. Here are two simple ways to outsmart the tax demon.
Increase your retirement contributions!
Did you know? Contributing more to your retirement fund means you pay less tax annually.
You are allowed to contribute 27,5% of your taxable income (to an annual maximum of R350 000) to your pension, provident or retirement annuity fund.
R15 000 x 12 = R180 000
R1000 x 12 = R12 000
Her taxable income will be reduced by R12 000 each year, so she will only pay tax on R 168 000 and not the full R180 000. However, she can contribute a total of R49 500 per year (R180 000 x 27,5%) to her retirement fund and be taxed even less.
Reap the rewards of compound interest - allow your money time to grow
Did you know? Withdrawing your retirement benefit in cash could cost you in tax. Rather consider leaving your money for the long run because you will benefit from compound interest.
Compound interest is important to you because it can turn just a small investment today into big money over the course of a lifetime.
Her brother Dean did not start investing until he reached age 40. At that time, he invested R15 000 at the same interest rate of 5.5% compounded annually. By the time Dean reaches age 50, he will have R33 487.