By Anja van den Berg
The 2018 Sanlam Employee Benefits Benchmark Survey confirms that many South Africans are simply not ready for the financial consequences of retirement. To add insult to injury, savings in the form of a retirement fund lump sum – and even tax-free investments! – are taxable.
But forewarned is forearmed, says Gerhard Linde, Senior Tax Consultant for CRS Technologies.
Linde explains: “There are retirement fund lump sum withdrawal benefits that one has to be cognisant of – that is the amount that becomes payable when a member terminates his or her membership in that retirement fund before reaching retirement age – for any reason other than retirement, death or retrenchment.
“Once the taxable portion of a retirement fund lump sum withdrawal benefit has been determined under the Second Schedule of the Income Tax Act No 58 of 1962, the tax thereon will be calculated by applying the tax table applicable to retirement fund lump sum withdrawal benefits.”
Tax relief of R500 000 on retirement lump sum benefits is allocated once in a lifetime. In other words, when it is used up, you cannot claim it again.
For example, if a person used R300 000 of the R500 000 with the first lump sum, the balance left is R200 000 and once this is used up this relief is not available again.
“Tax-free investments were introduced as an incentive to encourage household savings and can provide some tax relief on retirement savings by first exploring the tax-free investment option,” Linde explains.
This incentive has been available since 1 March 2015.
“The way this works is you don’t have to pay income tax, dividends tax or capital gains tax on the returns from these investments, you can only contribute a maximum of R33 000 per year.”
Moreover, there is a lifetime limit of R500 000 per person. If a person exceeds the limits, there is a 40% penalty on the excess amount.
HR Future: https://www.hrfuture.co.za/strategy/finance/how-to-be-prepared-for-retirement-tax/
Business Tech: https://businesstech.co.za/news/banking/260419/2-very-different-retirement-scenarios-in-south-africa/