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Reimagining tax year planning – early bird catches the worm

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Forget the end-of-year scramble to max out tax benefits with top-ups to retirement annuities and tax-free investments (also known as tax-free savings accounts). As the saying goes, the early bird catches the worm. Let’s flip the script this year, advocating for a proactive approach right from the get-go of the new tax year.

There’s a smarter way to navigate the tax year, and it begins with encouraging clients to act now to leverage the new tax year to their advantage.

Investing early simplifies the entire process. It means clients can spread the money they invest throughout the year, avoiding the top-up pressure as the tax year closes. Even though some clients cannot accurately predict their income for the year, they can make their financial planning more manageable.

Time is money, especially when it comes to investing. An early start capitalises on the entire year’s potential for growth so that investments can reap the benefits of compound growth for longer periods under tax-efficient conditions. This can significantly boost the overall performance of clients’ investment portfolios.

The last-minute rush isn’t just stressful; it’s risky too, as clients may miss the cutoff date to invest money in time to benefit from that tax year’s tax incentives. By planning from the start, clients can also, with your guidance, make thoughtful, well-researched decisions, ensuring their investments align with their circumstances, requirements, and long-term financial goals.

Over the years, the role of financial advisers has developed to extend beyond advice and product implementation; you are here to coach, guide, and empower your clients with effective strategies. Starting the tax year with a clear plan for using retirement annuities and tax-free investments is a game-changer. It’s about making the most of every tax benefit available, not just scrambling to catch what’s left at the end of the year.

The selection of an investment platform is critical in this proactive approach. A partner like Momentum Wealth, offering a robust array of tax-incentivised products, can make all the difference. We provide the tools and support you need to implement early-year strategies effectively, ensuring clients can maximise their investments’ growth potential and tax efficiency from day one.

Tax-free investment

Introduced in 2015, natural persons can invest in approved investment products, tax-free. These investments are subject to a lifetime investment limit of R500 000, and a yearly limit of R36 000 (2020: R33 000). The growth and the proceeds from a tax-free investment are fully exempt from South African tax, with no capital gains tax and no tax on dividends and interest. Investments of more than the yearly and lifetime limits are taxed at 40%.

Retirement annuity

Every tax year, a person can claim a tax deduction for the money invested in a retirement fund. To make the most of this deduction, clients can invest up to 27,5% of their taxable income or remuneration, whichever is higher, in a retirement fund. They can do this whether they are self-employed or earning a salary, but they are not contributing the full amount to their employer’s retirement fund. The maximum deduction a person can claim in a tax year is R350 000.

As we step into the new tax year, let’s change our perspective. Avoid the year-end frenzy and move your clients towards a thoughtful, year-long strategy. By encouraging clients to invest early, we’re not just helping them save on taxes; we’re setting them up for a more prosperous financial future.

It’s an approach that promises not only immediate tax savings for your clients but also a solid foundation for wealth creation and retirement planning on their journey to success.

Speak to your Momentum consultant or visit momentum.co.za to learn more about the Flexible Tax-free Option and the Retirement Annuity Option from Momentum Wealth.

*Source: Momentum tax guide 2024_2025.

Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider and part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.