RAs, the best tonic for your tax health

RAs, the best tonic for your tax health!

As we head into this final month of the tax year you may well be wondering if you could have done better in 2023 from a tax savings point of view. This article follows on from our January article on ‘How will your tax health look in 2024?’, so if you missed it you can find it here – How will your ‘tax health’ look in 2024? – Hereford Group

The king of tax-saving investments 

As promised, in this article we look at the king of tax-saving investments – Retirement Annuities (RAs). For the uninitiated, these are retirement investments that cannot be drawn on before the age of 55, hence the government’s desire to encourage them via providing tax-free incentives for investors. 

In essence, you can save as much as you like but up to 27.5% of your taxable income is tax-free! There is an annual limit though of R350,000. 

What are the benefits?

The benefits are obvious as you are essentially using the money you are saving on tax to fund your investment – or looking at it another way, SARS is paying a part of your retirement savings. Another big tax advantage is that the growth on your investment (which historically has been impressive in the right funds) is also tax-free!

Additionally, these savings provide income in your retirement years and especially for entrepreneurs running their own businesses who are not part of an employer’s pension / provident fund. An RA is hands-down the best way to ensure that you will have money to fund part or all your retirement income needs. You can draw up to one-third of the savings when you retire (subject to retirement tax tables), and the rest is supplied as monthly income – a kind of guaranteed pension if you like.

The 1/3 amount that you can withdraw is tax-free up to R550,000, but it’s worth noting that the tax relief on retirement lump sum benefits is allocated only once in a lifetime, so once used you can’t claim it again. For example, if a person uses only R250 000 of the R550 000 with the first lump sum, the balance left is R300 000 and once this is used up this relief is not available again. 

Finally, another benefit is that your RA savings are protected from your creditors regardless of whatever loss you may suffer. It is a provision of the retirement fund and ensures your retirement savings will be available when most needed no matter what.

Tax health is just the tip of the iceberg.

There are so many aspects to having a healthy financial portfolio. Utilising the best of the tax savings benefits available to us is just one of them and, like focussing on heart health as the only aspect of the body’s wellness, we cannot think that tax-saving is all that matters. 

There is so much more to a well-rounded portfolio and that’s where Hereford Group’s highly skilled Financial Advisors, many of whom are specialists in specific areas of wealth creation, can help you to construct a holistic, professionally structured wealth creation plan to ensure that you not only retire well but make the best of the life you are living every day.  

Contact us for a financial wellness assessment today and let’s make 2024 the year that your financial health took a decidedly upward turn!


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