RA's for dummies...

[shadow_man]

The more you save the more you get back, so 27.5% (or R350 000pa max) of your income is the sweet spot I'd think...

Ok so would the maths be as follows?

INCOME: R30 000 pm
RA CONTRIBUTION @ 27.5% : R8250 pm
TAX NORMALLY: R5703 pm
TAX AFTER RA PAYMENT: R3280 pm

Take home salary AFTER tax WITHOUT an RA: R30 000 (salary) - R5703 (tax) = R24 297 (after tax)
Take home salary AFTER tax WITH an RA: R30 000 (salary) - R8250 (RA) = R21750 (taxable salary) - R3280 (tax) = R18 470 (after tax)

THUS you're only paying R5827 for a R8250 benefit?

Is that correct?

 

[Messugga]

Ok so would the maths be as follows?

INCOME: R30 000 pm
RA CONTRIBUTION @ 27.5% : R8250 pm
TAX NORMALLY: R5703 pm
TAX AFTER RA PAYMENT: R3280 pm

Take home salary AFTER tax WITHOUT an RA: R30 000 (salary) - R5703 (tax) = R24 297 (after tax)
Take home salary AFTER tax WITH an RA: R30 000 (salary) - R8250 (RA) = R21750 (taxable salary) - R3280 (tax) = R18 470 (after tax)

THUS you're only paying R5827 for a R8250 benefit?

Is that correct?

Terminology aside, it's correct yes.

 

[Hamster]

The more you save the more you get back, so 27.5% (or R350 000pa max) of your income is the sweet spot I'd think...

That's up for debate considering you do not know the tax environment when you get it out. Also consider you only get out a third (I think) lump sum and the rest as salary.

Also consider the tax implications of withdrawing early in case if immigration.

An argument could be made that growing that lump sum via other investments (including TFIA which limits' will most likely increase over time) and then using that to live if dividends could be just as effective.

 

[^^vampire^^]

That's up for debate considering you do not know the tax environment when you get it out. Also consider you only get out a third (I think) lump sum and the rest as salary.

Also consider the tax implications of withdrawing early in case if immigration.

An argument could be made that growing that lump sum via other investments (including TFIA which limits' will most likely increase over time) and the using that to live if dividends could be just as effective.

Just as an extra note on this, you cannot get your RAs paid out or transferred if you have any financial obligations or assets in the country. I own 2 homes and cannot get my RAs transferred out of the country until I sell both.

 

[Cpt.SpAce.Cowboy]

Ok so would the maths be as follows?

INCOME: R30 000 pm
RA CONTRIBUTION @ 27.5% : R8250 pm
TAX NORMALLY: R5703 pm
TAX AFTER RA PAYMENT: R3280 pm

Take home salary AFTER tax WITHOUT an RA: R30 000 (salary) - R5703 (tax) = R24 297 (after tax)
Take home salary AFTER tax WITH an RA: R30 000 (salary) - R8250 (RA) = R21750 (taxable salary) - R3280 (tax) = R18 470 (after tax)

THUS you're only paying R5827 for a R8250 benefit?

Is that correct?

Yes that's correct. Like a said at the beginning you will then only be taxed for you salary minus the deduction.

 

[Gaz{M}]

At the very least, you can always withdraw the entire RA amount at 55 years old, if it is less than R247 500 (in today's money). So we should all at least make sure our RA's will be worth around that amount when we turn 55 and then we pay zero tax on it and get the full benefit of the SARS rebate.

 

[Freshy-ZN]

At the very least, you can always withdraw the entire RA amount at 55 years old, if it is less than R247 500 (in today's money). So we should all at least make sure our RA's will be worth around that amount when we turn 55 and then we pay zero tax on it and get the full benefit of the SARS rebate.

Pretty sure you get taxed on that withdrawal. Forms part of your income for the tax year and you are taxed accordingly.

 

[akescpt]

are lumpsums also included in this 27.5% of annual income?

 

[supersunbird]

are lumpsums also included in this 27.5% of annual income?

Of course.

 

[akescpt]

With good retirement planning you can pay zero tax when you are in retirement.

Of course.

so extra money from an investment can be used as an RA lump sum and you get the tax benefit? or are the lump sums just related to bonus and incentive money?

 

[supersunbird]

so extra money from an investment can be used as an RA lump sum and you get the tax benefit? or are the lump sums just related to bonus and incentive money?

Oh, I get what you mean, I don't know actually. Let my brain ponder it...

 

[zerocool2009]

My 2c worth ...

If you have an RA there are fees. If you put in extra lump sums, that is also managed on another/different way than your debit order, and once again, more fees.

What I have learned in 3 months, fees are killing your growth if you don't know what you are paying for, which means, the RA firms are coining it.

 

[Messugga]

so extra money from an investment can be used as an RA lump sum and you get the tax benefit? or are the lump sums just related to bonus and incentive money?

Your RA contributions are deducted from your income. Investment income counts as income.
How it impacts things like capital gains tax, I don't know. Will have to ask one of my accountant colleagues for that answer.

 

[Verde]

The source of the money is irrelevant, so you can transfer money from an investment into an RA as a lump sum contribution and the amount will be deductible from your taxable income for that tax year - ie. your tax liability will be reduced in line with the amount contributed up to the annual limit (27.5% of taxable income).

On fees - not all RAs are equal - stay away from the RAs sold by insurance companies (old style RAs). Go for unit trust RAs. For eg - the costs to invest in a unit trust with Allan Gray or Sygnia is identical to the cost to invest in their RAs, and the underlying funds you invest in are also identical.

 

[SaiyanZ]

Ok so would the maths be as follows?

INCOME: R30 000 pm
RA CONTRIBUTION @ 27.5% : R8250 pm
TAX NORMALLY: R5703 pm
TAX AFTER RA PAYMENT: R3280 pm

Take home salary AFTER tax WITHOUT an RA: R30 000 (salary) - R5703 (tax) = R24 297 (after tax)
Take home salary AFTER tax WITH an RA: R30 000 (salary) - R8250 (RA) = R21750 (taxable salary) - R3280 (tax) = R18 470 (after tax)

THUS you're only paying R5827 for a R8250 benefit?

Is that correct?

You still pay tax when you retire and withdraw your RA savings. You just end up deferring the tax to retirement instead of paying it now. Hence there is a benefit of earning interest on the tax that you would have paid now though and it adds up over the years but it is nowhere near R3k a month.

Note that there is a tax free portion when you retire, however you will most likely be exceeding this amount already.

In short you can't dodge tax and the benefit is the interest you earn on the R3k saved every month. At say 10% p.a., that's around R25 per month which can compound over several decades, but it's not much.

 

[zerocool2009]

Another thing to remember, currently I think the first R500 000 is tax free, and that gets bumps up once in a while when the new TAX tables comes out.

 

[supersunbird]

Another thing to remember, currently I think the first R500 000 is tax free, and that gets bumps up once in a while when the new TAX tables comes out.

The first R500 000 you can withdraw when your retire is indeed tax free... but only if your retirement fund (RAs and pension funds, provident fund money invested before 1 March 2016 you can withdraw all) has R1.5 million or more in it, since one can only take out a 3rd, the rest must go into a pension annuity.

If you only have R1.2 million in RA or pension fund, you can thus take out up to R400 000, and it won't be taxed.

If you only have R12 million in RA or pension fund, you can take out up to R4 million, the 1st R500 000 will be tax free and then the rest of that R4 million will be taxed as per the tax tables.

 

[akescpt]

The first R500 000 you can withdraw when your retire is indeed tax free... but only if your retirement fund (RAs and pension funds, provident fund money invested before 1 March 2016 you can withdraw all) has R1.5 million or more in it, since one can only take out a 3rd, the rest must go into a pension annuity.

If you only have R1.2 million in RA or pension fund, you can thus take out up to R400 000, and it won't be taxed.

If you only have R12 million in RA or pension fund, you can take out up to R4 million, the 1st R500 000 will be tax free and then the rest of that R4 million will be taxed as per the tax tables.

what a nice thought. not the tax. being comfortable in retirement.

 

[halfmoonforever]

Whats the benefit of having the RA go off my salary to pay less tax in a month, or have it just be a return from SARS as a lumpsum each year? I worked it out and you get the same money back each year than you would over the course of 12 months? So why not wait it out, get the lump sum paid out by SARS, pump that into another investment and happiness?

 

[Verde]

Whats the benefit of having the RA go off my salary to pay less tax in a month, or have it just be a return from SARS as a lumpsum each year? I worked it out and you get the same money back each year than you would over the course of 12 months? So why not wait it out, get the lump sum paid out by SARS, pump that into another investment and happiness?

The difference is the time value of money.
You can earn a return on that money if you get it earlier - if you have to wait, SARS sits with your money and earns your return.
If you have a bond for eg., you can increase your monthly bond repayment by the extra amount you get out, and earn a tax free return equivalent to the interest rate the bank charges you (prime is effectively 11%pa atm).