Retirement Season

It’s that time again, the end of the tax year, also come to be known as Retirement Season. It is the time where it is important to review your tax affairs to determine if you need to top-up your retirement funds.

Individuals can contribute up to 27.5% of their annual taxable income into a qualifying retirement product (e.g. Retirement Annuity) with a maximum deduction limit of R 350 000 per year. So, what does this mean to you? Well, by topping up your Retirement Annuity, not only will you be increasing your future retirement savings, but you will also be decreasing your income tax liability.

Already reached your 27.5% contribution allowance? No problem, two very viable options for you. First, you can contribute above the 27.5% and make use of the deduction for your following tax year as a roll over. Secondly, and in my opinion the better option, is to invest in a Tax-Free savings. You can invest up to R 33 000 per annum into this investment, with a lifelong limit of R 500 000. Tax free investments are great way to have an auxiliary retirement funds when it comes to your retirement date. The gains are, as the name suggests, tax free, thereby creating some very unique planning options upon your retirement that can really enable you to get the most out of your savings while minimizing the tax payable.

A few key differences between a Retirement Annuity (RA) and a Tax Free Investment (TFI):

  • How much can I invest?
  • RA: Any amount. You get the tax benefit on all amounts up to 27.5% of the greater of your taxable income or remuneration, capped at R 350,000 per year;
  • TFI: Up to R 33,000 per tax year, capped at R 500,000 over your lifetime.
  • Will investing decrease my taxable income?
  • RA: Yes. Investments up to the maximum in any tax year will decrease your taxable income that year. Investments over the maximum can be carried forward to the future years;
  • TFI: No.
  • When can I access my money?
  • RA: Any age from 55 onwards (except in specific circumstances);
  • TFI: Any time, but your contribution limits remain the same.
  • Are there restrictions on the types of investments I can choose?
  • RA: Prescribed legal investment limits restrict how much you can invest in the different asset classes (e.g. Equites, Property and Off-shore Investments);
  • TFI: No.
  • What are the estate planning benefits?
  • RA: Your money is excluded from your estate, except in specific circumstances. You may nominate who you would like the trustees to consider to receive your money but the trustees make the final decision;
  • TFI: You may nominate beneficiaries and they will receive the money directly, without waiting for the estate to be wound up. Estate duty is payable but there are no executor’s fees.
  • What if I invest more than the limit?
  • RA: Your tax benefit will be rolled over to the following tax year, until you’ve received it in full;
  • TFI: You will have to pay a penalty of 40% of the amount you invest above the maximum.

Please contact us if you require assistance with your calculation or if you wish to implement a tax efficient investment strategy. LEAD Financial Strategists is and authorized financial services provider.


  • Article by Byron Lockett