Boost your retirement savings - Courtesy of the taxman
19 November 2013 | Retirement | General | Camilla Edwards, PPS
As the end of tax filing season draws to a close, it’s a good time to remember that your retirement annuity (RA) offers you a very attractive tax benefit: A portion of the total contribution you make towards your RA in any given tax year is tax deductible.
This means that when submitting your income tax return, you can claim back a portion of the money you have contributed towards your RA without impacting the value of your investment. If you choose to invest the money that you are able to reclaim, you are therefore able to add to your retirement savings without any additional outlay.
RA contributions for the tax year ending February 2014 are tax deductible for the greater of:
• 15% of non-retirement funding income (income not already being used for contributions to a pension or provident fund);
• R3,500 less pension fund contributions; or
• R1,750, with any excess being carried forward to the following year of assessment.
If you do not expect your RA contributions for the current tax year to reach your maximum tax deductible amount by end February 2014, it may be worth considering an additional ad hoc contribution to do so.
It is also an opportunity for investors in traditional, underwritten RAs to access the flexibility and cost savings associated with a modern, unit trust based offering. Even if termination charges imposed by your policy’s underwriter may be prohibitive when considering a transfer to a unit trust based savings vehicle, ad hoc RA contributions can be made into a separate, unit trust based RA investment without incurring any penalty. You can also rest assured that this ad hoc investment will not be subject to any penalty in future, as modern, unit trust based RAs pose no termination charges for reducing or ceasing investment contributions or for moving your investment to a different product provider.
As the year winds to a close and the prospect of a year-end bonus or 13th cheque comes into view, keep your retirement savings in mind and make the most of the tax benefit you are able to access.
