By Carl Roothman, 2 February 2016
What will you do with your tax refund? Fund your next holiday? Use it as a deposit on a new car, or simply continue to bolster your bank account? While July may still be a long way off, you only have until the end of February to contribute to your retirement annuity and reap the benefits for the current tax year.
Firstly, you are increasing the savings pot and financial security available to you at retirement. In addition, under current legislation:
Your financial planner will guide you in terms of how much you need to save every year to meet your retirement goals. In terms of how much makes sense from a tax perspective, SARS stipulates a set maximum for your total RA contributions for the 2015/16 tax year. You may contribute more, but you will not enjoy tax-deductibility for any amounts exceeding the annual cap. Currently you can enjoy the tax benefit for a total amount up to the greatest of:
So, if you earned a salary of R500 000 for the year, of which your PEAR (pensionable earnings) were R400 000, and you received no business income or interest that exceeds the annual exemption threshold, you can contribute 15% of the remaining R100 000 non-PEAR earnings of your salary, and that contribution will be considered for a tax refund. (Remember to submit your RA tax certificate.)
These limits will change from 1 March 2016, making it possible for you to contribute up to 27.5% of your salary or taxable income (whichever is the greatest) across your employer’s retirement fund and your private RA and enjoy the tax benefits. This is good news for next year!
It is possible to open an account within a few days. Discuss the options with your financial planner and make sure you understand the total costs involved, as well as the risks attached to the underlying funds in your RA.
The Sanlam Investment Management (SIM) Retirement Plan offers you a choice between three SIM funds with different risk levels, while the Satrix Retirement Plan has the Satrix Balanced Index Fund and Satrix Low Equity Index Fund as underlying investment choices. More information is available on