By: Natalie Sancho, Assistant Financial Planner, BDO Wealth Advisers
The latest Budget Speech 2017 amends to personal income tax and the subsequent increase in trusts tax to 45% can be discouraging for those looking to save. But with no changes to Provident Funds and an increase in estate duties, somehow Retirement Annuities remain the best way to save on taxes, especially if you are retired.
While most 90 year olds are knitting jerseys for their grand-children or spending their money on bowls and bingo nights, others have realised the tax opportunities they can take by contributing to a Retirement Annuity.
Regardless of whether you are approaching retirement or celebrating your 21st, you should be taking full advantage of the RETIREMENT ANNUITY contribution tax deduction. This contribution is allowed as a deduction against your taxable income of up to 27,5% or a maximum of R350,000 per annum as a tax deductible amount.
Once you hit 55 years of age, you can retire at any time from your RETIREMENT ANNUITY. The lump sums received are taxed according to a tax table which is different to your individual marginal tax rate. This is highly beneficial as you receive a withdrawal amount of R500000 tax free within your lifetime.
According to this table you will be taxed at a maximum rate of 36% which ensures that if you are at an individual tax bracket of above 36%, you will reap the benefits of being taxed at a much lower rate.
But why on earth would an older person already retired want to boost retirement income at such a late age?
It’s not about your age or boosting your income, it’s about the tax benefits that will accrue to you as well as your heirs on death.
You may be concerned and anxious about starting a RETIREMENT ANNUITY at the age of 90 because you don’t want to incur extra tax in your estate on death. There is no need to panic.
The fund value, as well as growth within the fund is paid directly to your beneficiaries and is not subject to estate duty. Therefore, by being retired and topping up your contributions, not only will your dependants and family members benefit but so will you in your lifetime through a reduction in your taxable income.
So, whether you are 21 or 90 years of age, any tax relief remains an attractive way to achieve extra savings.
So next time your 90 year old grandmother tells you about her retirement annuity payments, don’t laugh in disbelief – these contributions could ultimately benefit you!
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