It’s too late now to do anything for this year’s return, the tax season already being upon us. But there is a way to make return season next year that much sweeter, at the same time as looking after your future self. It is hard to believe when you put it like this but the bottom line is: You can build a nest egg for your future self and get the taxman to partially fund it.
Simply contribute to a retirement fund and Sars will reward you by charging you less tax, effectively paying you back a portion of any money you save towards retirement. You can deduct total contributions to a pension, provident or retirement annuity fund, up to 27.5% of your taxable income. The overall limit is R350,000 per annum.
There are still eight months of the current tax year to go, so get started now and by the time tax season comes around in a year’s time you will have a decent claim to make. If you set up a debit order today, by the time tax season rolls around again you will most likely not even notice those monthly deductions.
But don’t wait another year, or even a few more months. Allowances not used this year are lost forever. Your future self will thank you for making a little effort for what can be a big return!
How much tax you save depends on your marginal tax rate. If the highest tax rate applied to your income is 30%, you save R30,000 in tax for every R100,000 you contribute over the year, or R15,000 for every R50,000 you put towards your own retirement. For those in the highest tax bracket (45%) contributing the maximum amount (R350,000) means a potential tax saving of R157,500 per annum.
If you are already contributing to a retirement fund, consider raising your contributions a little. This will also increase the amount of money you are essentially diverting from the Receiver into your pension pot.
If it is an office fund ask your HR representative to increase your contribution rate. They will most likely do the calculations for you and you won’t get a refund next year, but instead you’ll start paying less tax every month.
If you don’t belong to a workplace retirement fund, or the fund’s rules don’t allow you to increase your contributions, you can start an RA fund instead. There are plenty of providers, such as 10X Investments, that allow you to sign up online without paying an advisor.
Then claim the contributions made to your RA when you submit your annual tax return, using the IT3(f) tax certificate from your provider as evidence.
If you don’t feel able to commit to a higher monthly contribution, most funds will allow you to make occasional contributions, known as additional voluntary contributions, when you can. Your HR department will assist you with this.
Many people put a portion of their year-end and other bonuses into their retirement savings. Think of it as putting a little of your bonus aside for the years when you will no longer get one, and claim some of it back from the taxman.
Another way to increase your RA contribution rate without reducing your take-home pay is to re-invest the annual tax refund as a lump-sum. That way, your refund will increase every year, and within a few years you will have significantly increased your rate of saving.
In an industry famous for mammoth promises on a large, confusing array of products, most of which disappoint, 10X uses a simple, proven strategy to give individual and institutional investors the best possible chance of reaching their retirement investment goal.
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