Investment question...

[Next Thing]

If you're reaching your RA tax benefit limit each year, freaking well done! I can't imagine too many others manage that.

Just so other know what you mean :

A maximum of 27.5% of your remuneration or taxable income (whichever is higher), and no more than R350,000, is tax deductible in a tax year. You can contribute more to your RA but after you've reached these limits, your contributions are rolled forward to and automatically deducted in future years.

ie max of just under R29k/month.

 

[Affieplaas]

I really enjoy the Money Marx investment channel on Youtube. Worth checking out if you are interested in personal finance in SA.
https://www.youtube.com/c/MoneyMarx/videos

An RA is a great way of saving for retirement if you are financially irresponsible. Once your money goes into the RA there is no way of getting it out until age 55 (except if you die or emigrate of course) and even then you can only take one third in cash and the rest will be paid out to you as an annual annuity.

Also, the tax saving is a just a deferment of tax, so you save tax now but pay it again once the annuity pays out. There are two benefits with this: (1) when you retire your marginal rate will probably be lower as your income will be less (2) all gains on the investment is taxed as income and not as capital gains.

 

[Speedster]

I really enjoy the Money Marx investment channel on Youtube. Worth checking out if you are interested in personal finance in SA.
https://www.youtube.com/c/MoneyMarx/videos

An RA is a great way of saving for retirement if you are financially irresponsible. Once your money goes into the RA there is no way of getting it out until age 55 (except if you die or emigrate of course) and even then you can only take one third in cash and the rest will be paid out to you as an annual annuity.

Also, the tax saving is a just a deferment of tax, so you save tax now but pay it again once the annuity pays out. There are two benefits with this: (1) when you retire your marginal rate will probably be lower as your income will be less (2) all gains on the investment is taxed as income and not as capital gains.

Minor note, income tax is higher than CGT due to CGT inclusion rate as well as annual exemption.

 

[TheJman]

I'm thinking the same though I do think killing debt first is always wise.
I've always wondered though... The 40%+ tax saving up front with an RA
.. hard to find an investment to match that up front saving, but how does it pan out when you retire since you pay tax on it then...

So this is where I'm at on it - depending on your Marginal Rate, you are investing more now, which ties in to the time in the market philosophy.

The considerations to keep in mind with an RA are the large fees payable on it, and the fact that the amount that may be invested offshore is limited.

From the tax perspective, the thinking is that when you retire, you will no longer be earning a salary, so your marginal rate of tax will be less, so you are deferring your tax liability to a time when your marginal tax should be less than it currently is.

But my personal view is that the longer you let your money soak in the market, the better - which ties in with investing more now