Investing in a retirement annuity fund is not only a fantastic way to ensure your own long term financial future but can also, ultimately, save you money today through the various tax benefits it affords.
On the 28 February of 2015, the deadline for submitting your retirement annuity form in order to get tax benefits passes. This means that, even if you have contributed to your retirement annuity fund, you will be ineligible for the tax benefits available if you do not meet the deadline.
What is a retirement annuity?
A retirement annuity (RA) is a pension like fund which pays out a set amount of money (based on your level of previous investment) over consistent intervals after a set time period (Usually 55 years of age). These are usually utilised by self-employed individuals who don’t have an employer contributing towards their pension fund.
Remember, Northwood’s financial services specialise in, amongst many more, finding the optimal RA to suit your needs and ultimately guarantee a prosperous and stress free retirement.
Catching the Tax Break
The tax benefits provided by investing in a RA may seem technical at first but become clear in all their money saving glory under closer inspection. So what are the need to know tax deductions afforded by a RA fund? Essentially you, as a taxpayer, have the option to take the highest amount of the following three options as a tax deduction:
- A straight R1 750 tax deduction
- Tax deduction of R3 500 minus the amount of your pension fund contribution
- Tax deduction of 15% of contributions made towards RA fund
Changes for the Next Financial Year
It is worth noting that, as of March the 1st, 2015, the system used to calculate tax deductions on RA funds is in for a complete overhaul. The new legislation creates one tax system for all RA funds, pension funds and provident funds (which previously had different systems). The new system allows individuals to claim back 27.5% on their taxable income contributed towards their respective fund. However, one key change is that the available tax deduction is now capped at a maximum of R300 000. Thus, these new changes should help most people through the greater percentage on offer, but will negatively affect the super-rich due to the now capped deduction limit.
As stated previously, the deadline for this tax benefit passes on the 28th of February. This tax deduction can save you a significant sum of money in terms of your final taxes paid and thus submitting your application by the due date should be made a priority. Remember, wealth is not accumulated through large, instantaneous windfalls, but is rather the sum of many small, smart, money saving decisions. Going through the admin of SARS to claim your tax benefits is one such decision!
RA’s aren’t the only avenue towards reducing your taxes, far from it. Making use of Northwood’s tax consultants ensures that every possible option is explored when it comes to paying your taxes, which can ultimately save you a substantial amount of money over the course of a lifetime. Make sure to utilise them today!