As the end of the year approaches, South Africans generally start shifting their thoughts away from business or finance to thoughts of coastal holidays and family events. The temptation to spend and indulge is never stronger than during this time and without proper thought, investors miss out on the simple opportunity to get some cash back from SARS a few months later.

One way to receive something from this unexpected source, is to allocate a portion of your bonus or savings to topping up your retirement annuity (RA). Or by investing in a new RA if you have not done so yet. Not only will you reduce your tax liability, but also boost your retirement savings and earn compounding tax-free returns.

Faced with the question of whether to pay taxes or save, everyone will agree that the latter is the better option. Thus, before the tax year ends, spare a thought about the incentives the government has put in place to encourage us to save. SARS allows individuals to invest up to 27.5% of their annual income in retirement funds, such as an RA. The total contribution is capped at R350 000 per year.

If you earn R500 000 per year, for example, you will receive a tax deduction for contributions to your RA of up to R34 000. To simplify this, instead of paying tax on R500 000, your income will reduce by R34 000.

You will only pay tax on R466 000, which amounts to a tax saving of around R12 000. One could then say that R12 000 of your contribution was government funded.

As an added incentive, the growth in a retirement fund or RA does not attract income tax, dividend tax or capital gains tax. This tax incentive contributes to further savings.

You have until 28 February 2019 to benefit from these tax savings
If you have not yet contributed 27.5% of your taxable income to your retirement fund in this tax year, you have until 28 February 2019, which is the end of the tax year, to top up your investment. You also still have time to invest in a new RA if you don’t already have one, but want to make use of the tax benefit available to you.

Always make these decisions with the help and guidance of a financial advisor to insure that you get the best returns on your smart investment choices.

Ecsponent offers a range of retirement solutions. Contact our accredited advisers to get your savings contribution from SARS.

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