Where to channel your tax rebate
NOW that the tax year has come to a close, many individuals are anticipating significant tax rebates.
Rather than hastily splurging on non-essential items, consider investing it, along with any other bonuses or cash incentives, in a retirement annuity. The vehicles offer significant advantages for long-term financial planning:
Tax deductibility: Contributions to retirement annuities are tax-deductible, with limits set at R350 000 or 27.5% of the greater of remuneration or taxable income. Excess contributions can be carried forward, providing tax benefits in subsequent years.
Tax-free investment returns: Investment returns within retirement annuities are tax-free, including dividends, interest and capital gains, providing a favourable environment for wealth accumulation.
Tax-free transfers: When changing employers, funds accumulated within employer-based retirement schemes can be transferred tax-free into a retirement annuity, preserving tax benefits, and enabling continued growth through investment returns.
Retirement income: At the age of 55, retirement annuity holders can access a third of their savings as cash, with the remainder providing a regular income stream.
Investment growth: Retirement annuity funds are invested to facilitate accelerated growth, typically outpacing traditional savings vehicles. Investors may have access to a range of investment options tailored to their risk tolerance and financial goals.
Creditor protection: Retirement annuity funds are safeguarded from creditors, under the Pension Funds Act, ensuring asset protection even in the event of financial difficulties.
Flexibility: Retirement annuities offer flexibility in contribution levels, allowing for adjustments to suit changing financial circumstances. Contributions can be increased, decreased or halted as needed.
Security: By automating contributions through debit orders, individuals can secure their retirement savings.
Estate planning: Retirement annuity funds bypass the probate process, providing expedited access to beneficiaries and ensuring financial support during challenging times.
Cost efficiency: With minimum contributions starting as low as R500 to R1 000 a month or annual lump sums ranging from R10 000 to R50 000, retirement annuities offer a cost-effective means of building retirement savings.
Consult a financial adviser who can provide guidance on retirement annuities.