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What are the benefits of an RA?

Firstly, you are increasing the savings pot and financial security available to you at retirement. In addition, under current legislation:

  • Your RA contributions are tax-deductible (up to an annual limit).
  • You don’t pay any tax on the capital growth and income while in the fund.
  • Your retirement savings are protected from creditors.
  • Your RA is not included in your estate upon death.

How much is enough?

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:

  • 15% of your non-retirement funding income (i.e. the non-PEAR portion on your payslip plus any income from investments and your own business less the deductions allowed on these)
  • R3 500 less the amount that your payroll administrator has already deducted in terms of any contribution to a pension fund
  • R1 750

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!

What if you don’t have an RA?

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.

What does Sanlam Investments offer?

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 www.sanlaminvestments.com.

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