Including tax planning within your retirement and investment strategy is critical to giving yourself the best opportunity of a successful retirement where you can maintain your independence and lifestyle.
Pre-retirement savings within your Company Pension/ Provident Fund or your own Retirement Annuity is one of the most tax efficient products you will get for investing, for example, you can get a tax deduction each year on your retirement savings up to 27.5% of your taxable income ( to a maximum of R350 000 each year), this is a huge benefit, another important factor is that none of the growth within the investment is taxable, there is no income tax on the interest or dividends earned within a retirement savings product, there is also no capital gains taxes payable on switches of funds with in the retirement savings product. This is a real WOW when it comes to accumulating wealth. As a business owner it is important to know that your retirement annuity is also protected from creditors!!!
Many small business owners may feel that they can get a better return by reinvesting all their money back into their business but as seen with the lockdown, putting all your eggs in one basket can lead to financial ruin from which you may never recover.
The amount that you put into your retirement savings actually reduces your taxable income before your marginal tax rate is applied and this does not only reduce your tax liability but could help bring you into a lower tax bracket, take a look at the example below.
If you are one of the lucky few who can actually max out their tax deduction every year, you may be wanting to find the next most tax efficient product in which to place your money. The next best vehicle is going to be a tax-free investment, this product does not come with a tax deduction but you still get to benefit from no taxes on the growth within the product and that is huge, ideally you want to use this product as part of your retirement planning and not access it until your are ready to transition into your retirement, but it is nice to know that the money in a tax-free investment is accessible should you need it. You can invest up to a maximum of R500 000 currently over the lifetime of the investment but the growth on it is not restricted, remember not to put more than R36 000 per year into it, if you do, the amount you place in over the R36 000 will be taxed at 40% and this defeats the aim of the investment which is to be tax-free.
After you have maxed out your tax-free savings, your next most efficient investment product will be an endowment, this product will be taxed within the fund and the taxes paid by the insurer on your behalf to SARS, the tax rate applicable on individuals is 30% and if your income tax rate is above 30% this becomes a tax efficient product to use at this stage. As the investment was already taxed, when you receive the money, you don’t pay any tax on it, so basically when you take it out it is tax-free in your hands.
If you would like to know more about tax efficient wealth accumulation for your retirement, select the “Request a Call Back” tab on our Website or go to our Facebook page and send us a message directly and we will get back in touch with you and arrange a complimentary no obligation, no cost Financial Analysis to determine at which life stage you are and what your needs are at this moment. It is vitally important to consult with an accredited Financial Adviser when making decisions of a financial nature.
The contents of this document are for generic information purposes only and do not constitute advice or intermediary services as contemplated in the Financial Advisory and Intermediary Services Act, Act No 37 of 2002 (FAIS). Whilst every attempt has been made to ensure the accuracy of the information contained herein, Myself, Liberty or Stanib cannot be held responsible for any errors that may be represented. You are requested to consult with an accredited financial adviser prior to making any decisions of a financial nature. Performance will depend on the growth in the underlying assets within the portfolio, which will be influenced by inflation levels in the economy and prevailing market conditions. Past performance cannot be relied on as an indication of future performance. Unless stated otherwise, returns can be negative as well as positive. Liberty Group Limited (reg no 1957/002788/06) is a registered Long-term Insurer and an Authorised Financial Services Provider (FAIS no. 2409)
