While July may still be a long way off, you only have until the end of February to contribute to your retirement annuity and reap the benefits for the current tax year.
Firstly, you are increasing the savings pot and financial security available to you at retirement. In addition, under current legislation:
• You don't pay any tax on the capital growth and income while in the fund.
• Your retirement savings are protected from creditors.
• Your RA is not included in your estate upon death.Your financial planner will guide you in terms of how much you need to save every year to meet your retirement goals. In terms of how much makes sense from a tax perspective, SARS stipulates a set maximum for your total RA contributions for the 2015/16 tax year. You may contribute more, but you will not enjoy tax-deductibility for any amounts exceeding the annual cap.
Currently you can enjoy the tax benefit for a total amount up to the greatest of:
• R3,500 less the amount that your payroll administrator has already deducted in terms of any contribution to a pension fund
• R1,750So, if you earned a salary of R500,000 for the year, of which your PEAR (pensionable earnings) were R400,000, and you received no business income or interest that exceeds the annual exemption threshold, you can contribute 15% of the remaining R100,000 non-PEAR earnings of your salary, and that contributions will be considered for a tax refund. (Remember to submit your RA tax certificate.)
These limits will change from 1 March 2016, making it possible for you to contribute up to 27.5% of your salary or taxable income (whichever is the greatest) across your employer's retirement fund and your private RA and enjoy the tax benefits. This is good news for next year.
It is possible to open an account within a few days. Discuss the options with your financial planner and make sure you understand the total costs involved, as well as the risks attached to the underlying funds in your RA.
