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In order to help encourage retirement savings, the government promotes various income tax incentives. One of these retirement savings tax incentives is in the form of retirement annuities. Arguably less popular than other savings vehicles due largely to the lock-in rules applicable, a well invested retirement annuity can serve to prepare for your future and offer great tax benefits in the present. As the 2021 tax year comes to an end, it may be time to consider topping up your retirement annuity (RA) with discretionary, ad hoc or once-off additional contributions to enjoy the taxation benefits available to you as taxpayer.
income tax
The benefits of contributing towards a RA include the following:
  1. RA contributions are tax deductible (subject to certain limitations), and accordingly serve to reduce taxable income. By utilizing the RA taxation provisions in full, the tax saving is maximized.

    The deductible contributions on retirement annuities are limited to 27.5% of your taxable income and are also capped at R350 000.00 p/a.

  1. Any disallowed contributions made in the current tax year are not forfeited. These are carried over to ensuing years for assessment, again subject to applicable limitations.

    Any unused contributions available upon retirement, can be carried over and utilized at or after retirement.

  1. Growth within the retirement fund is taxed at 0 %. This means that capital gains, dividend withholding tax as well as earned interest accumulate (on a compound basis) without being reduced by tax. This benefit means that your RA investment value has the potential to be higher than that of a discretionary unit trust.

    It is important to remember that after retirement your annuity income will be taxable in your hands.

  1. Retirement annuities are excluded from the dutiable value of your estate. Any excess contributions that were not allocated in previous years could, however.

    In the event of death, there are various options with retirement annuities to benefit dependents or beneficiaries.

  1. With a retirement annuity the member will not have access to the accumulated funds until the age of 55, except in the event of a formal emigration, disability or if the total of the annuity is below R7 500.00. This ensures that the retirement savings are only utilized at retirement.

It is clear that topping up your retirement annuity yields various income tax benefits. At MMS Group, we assist both individuals and businesses with our professional tax services, and this includes sharing tips that assist our clients to be tax smart. Your personal financial adviser should be contacted in the event that you wish to pursue topping up your RA. Should you require assistance or advice with your taxation matters, please get in touch with one of our tax consultants.