With the tax year drawing to a close at the end of February, it is worth looking into the advantages of making a supplementary contribution into your retirement annuity (RA). The National Treasury estimates that only 10% of South Africans are able to maintain the same standard of living after retirement. Here are some good reasons to give your RA a boost before the tax year end.

Boost your tax return
When submitting your income tax return you can claim back a portion of the total contribution you made towards your RA without affecting the value of your investment.  This amount can be as high as 40% of all your contributions, whether made monthly or as single premiums during the tax year. If you choose to invest money that you are able to reclaim then you are able to add to your retirement savings without any additional outlay.

Benefit from further tax advantages
RA’s offer a more than welcome tax break from the get-go. This is because returns generated within RA’s are not subject to Income Tax, Capital Gains Tax or Dividend Withholding Tax.

Structured, yet flexible, investing
A regular debit order into a unit trust based RA will get you into the habit of saving every month. However, these investments still offer you the freedom to change or cease your monthly contributions without incurring penalties should your personal circumstances change unexpectedly.

You can invest the greater of the following amounts each year to an RA tax-free:

  • 15% of your ‘non-retirement funding’ income (variable income like bonuses and commission); or
  • R3 500 less your allowable pension fund contributions; or
  • R1 750

If your RA contributions for the current tax year are not going to return the maximum tax deductible amount by the end of the tax year, then it is definitely worth considering making an additional installment towards your RA. Need more financial advice? Let’s get in touch!