Investing for retirement through a retirement annuity (RA) is probably the most effective and rewarding way to save for retirement because of the unique benefits offered.
“The most significant benefit is the fact that you can enjoy unparalleled tax savings which you can use to boost your retirement savings,” explains Tandisizwe Mahlutshana, Marketing Executive at PPS Investments.
To get these great savings you can top-up your RA to the limits set by SARS before the end of each tax year. The current tax year ends on 28 February 2019.
You can contribute up to 27.5% of your annual taxable income in a RA, subject to a maximum tax deduction limit of R350 000 per annum.
Furthermore, SARS will not penalise you for contributions that exceed the allowable limits. Instead, you will be allowed to add the excess onto the following year’s tax returns.
The proof is in the pudding
As an example, twins, Thabo and Thando earn annual salaries of R500 000. Both contribute 7.5% of taxable income into their respective retirement annuities. They earn an annual bonus of R100 000 each. Thabo goes on a spending spree. Instead of splurging her entire bonus, Thando takes a portion of her bonus to top-up her RA. After 15 years, Thando has 80% more in retirement savings than Thabo.
“Making a decision not to top-up your retirement annuity in favour of having more disposable income can be tempting but in the long run the benefits of topping up your retirement annuity far outweigh the decision not to,” says Mahlutshana
To get an idea of the maximum top up contribution allowed on your retirement annuity and the tax you could get back, use the PPS Retirement Savings Tax Calculator on our website.
