Essentially what the tax man is saying is that you can contribute up to 15% of your non-retirement funding income to your own Retirement Annuity and get a tax break on the portion you contribute at this time. This however, is all about to change in the coming tax years.
We will shortly discuss in detail the new tax legislation as the government moves towards a new proposal in order to get South Africans saving for retirement.
For this year make use of your opportunity to make a top up while you can, but don’t leave it too late. You will need to get a balance of your contributions to date and then work out what the maximum is that you can top up. You don’t have to top up the full difference. If you can only afford a portion of the maximum allowed, by all means still top up within your budgetary constraints.
Your financial advisor along with your tax accountant will then request the necessary tax certificates required to fill in your tax returns.
Understanding the different tax breaks and options can be daunting, but doing nothing is a more frightening scenario. Please seek advice from any accredited advisor who will be able to guide you and explain the various choices you have as either a member of a structured pension or provident fund or as a RA member.
- Work out the amounts you want to consider topping up into your existing RA.
- Increase your current contributions to achieve the correct yearly contributions.
- Restart an RA investment you possibly stopped paying into a few years ago. (Fund rules may apply)
- Start a new Retirement savings plan.
Remember you don’t have to contribute to the maximum of the tax deductible allowance. Keep your contributions within your budget allowance and work towards increasing to the legislative (Tax Man) allowance.
If you are about to retire or are already on retirement and drawing a percentage of your fund, you may want to consider the following:
- Have your advisor review your annual draw down. percentages, this is normally done on the anniversary of your plan, but now is as good a time as any to review.
- About to retire – GET ADVICE! There are many options and factors to consider. Speak to a qualified Investment advisor as you have been saving for many years and your next step must be very carefully researched.
- You must work out your future income needs, which must be calculated along with that of your household expenses, your other income sources, assets, and your spouse’s current RA funds, then taking into account when you will both be on full retirement.
- If you are currently invested in an income annuity, (i.e. you are receiving a monthly income from your retirement savings) review your underlying investment portfolio. NB -this is vital so have your advisor sit down with you to carefully explain the fund choice. We have, over the past few years, seen tremendous returns on the JSE (stock Exchange). If you are invested in a high equity portfolio you will have seen double digit returns, but remember what goes up must come down.
- Please get advice on how to protect your funds from market movements. There are “safe” fund choices that will still allow you to participate in growth and provide a level of security against sharp market volatility.
- Ensure you are investing in funds that are in line with your risk profile and that address your need to either preserve capital or to seek growth or a combination.
- Your choice of portfolio will determine your future pension income levels and how long these funds will serve you.
Meet with a retirement planning expert – Ask your parents … this is one of the most important decisions you will ever make, and one of the smartest investments.
Start small … BUT START!