RA's for dummies...

Scooby_Doo said:
Here is a question,

Am I insane for not wanting an RA? I am convinced that due to the limit of 30% max international exposure for RAs even with the tax saving I can still get a better return over all if I dump all my saving directly into an international fund outside of SA in hard currency.
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Well there is the tax saving and other factors like creditors not being able to touch it. Wrt the tax saving (and let's assume you structured your salary to get the tax benefit immediately):

With no RA/Pension:
Salary: R50,000
Nett: R37,405

With 10%/R5,000 going towards RA/Pension:
Salary: R50,000
RA: R5,000
Nett: R34,316

You are R3,089 out of pocket every month but saving R5,000 so scored R1,911.

With 20%/R10,000 going towards RA/Pension:
Salary: R50,000
RA: R10,000
Nett: R31,116

You are R6,289 out of pocket every month but saving R10,000 so scored R3,711.

And that what you save you can always invest. So apart from the limitations of the RA one day when you retire there's no real downside and you'll struggle to find better growth. And if you cannot structure your salary like this to get the immediate benefit but can afford to pay the RA every month you'll get all of that money back come filing season as a lump sum.

IMO, pension/provident funds should be compulsory but that's for a different thread.
 
I.am.Sam said:
So with a R1000 budget im going to maybe see if half can go into a provident fund and other half into a RA

will need to see how this works

just worried about fees cause i dont understand investments in general
Click to expand...

How old are you if I may ask?

R1000 isn't a lot to go towards your retirement.
 
Hamster said:
Well there is the tax saving and other factors like creditors not being able to touch it. Wrt the tax saving (and let's assume you structured your salary to get the tax benefit immediately):

With no RA/Pension:
Salary: R50,000
Nett: R37,405

With 10%/R5,000 going towards RA/Pension:
Salary: R50,000
RA: R5,000
Nett: R34,316

You are R3,089 out of pocket every month but saving R5,000 so scored R1,911.

With 20%/R10,000 going towards RA/Pension:
Salary: R50,000
RA: R10,000
Nett: R31,116

You are R6,289 out of pocket every month but saving R10,000 so scored R3,711.

And that what you save you can always invest. So apart from the limitations of the RA one day when you retire there's no real downside and you'll struggle to find better growth. And if you cannot structure your salary like this to get the immediate benefit but can afford to pay the RA every month you'll get all of that money back come filing season as a lump sum.

IMO, pension/provident funds should be compulsory but that's for a different thread.
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Sure, but in terms of tax, if you invest outside of an RA you pay capital gains only (after your normal income tax). Within an RA you will need pay tax similar to how we do with a salary. Does that not mean we are differing paying tax until retirement with an RA and not avoiding it?

Edit, I need to make a list for my arguments, give me a sec.

Out RA Benefits:
1. Can invest up to 100% off shore in hard currency.
2. Avoid paying tax on depreciation of the Rand as capital gains is calculated on the currency you are investing with.
3. Pay on capital gains only (currently 18%) which is then added to income tax.
4. Flexibility to retire where ever.
5. Reduce risk of having most of your savings in one country.

Out RA Drawbacks
1. Pay income tax on whole salary, missing out on the saving.
2. Creditors can claim on you.

In RA Benefits
1. Save on tax payments
2. Creditors cannot claim your savings
3. Forces you to save
4. Prevents you from drawing it early (protect yourself from yourself)

In RA Drawbacks
1. Forced Annuity (2/3rds of your savings paid monthly)
2. Pay tax on annuity income over a certain threshold depending on age.

Feel free to add or correct me.
 
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Scooby_Doo said:
Sure, but in terms of tax, if you invest outside of an RA you pay capital gains only (after your normal income tax). Within an RA you will need pay tax similar to how we do with a salary. Does that not mean we are differing paying tax until retirement with an RA and not avoiding it?

Edit, I need to make a list for my arguments, give me a sec.
Click to expand...

You're right, but you're not paying tax on the RA funds at your marginal tax rate. For me that's about 40%. When I'm retired, I'm not earning a salary anymore, so funds coming from the RA then would be at a lower tax rate, in today's terms. Certainly a large portion of it would get taxed at less than 40%, if not all of it.
That's also why my reasoning has always been that RAs make a lot more sense for people in higher tax brackets. If you're paying no tax because you're earning too little, then you'd much rather have your money in other investment vehicles with fewer restrictions.

Of course, you never know what happens between now and retirement. I'm 32. Real retirement is still a long way off for me and there's probably an emigration happening between now and then anyway, which would mess things up more.
 
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Scooby_Doo said:
Sure, but in terms of tax, if you invest outside of an RA you pay capital gains only (after your normal income tax). Within an RA you will need pay tax similar to how we do with a salary. Does that not mean we are differing paying tax until retirement with an RA and not avoiding it?

Edit, I need to make a list for my arguments, give me a sec.
Click to expand...

I get what you are saying but the point is you have more money to invest right now that'll grow over time. You don't need to use the full 27.5% allowed of your salary but even a bit helps. You'll pay tax one day when you use the money but the R1000 you saved now will be worth R10,000 30 years from now if it grows by 8% annually.
 
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I.am.Sam said:
im 32 this year , not so rich to afford more sadly
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Damn, you should try and increase it when you can. Retiring poor would suck :(

I'm 33. Trying to put away as much as possible and finding it difficult to get through every month, but way too scared to retire with not enough.
 
Scooby_Doo said:
Sure, but in terms of tax, if you invest outside of an RA you pay capital gains only (after your normal income tax). Within an RA you will need pay tax similar to how we do with a salary. Does that not mean we are differing paying tax until retirement with an RA and not avoiding it?

Edit, I need to make a list for my arguments, give me a sec.

Out RA Benefits:
1. Can invest up to 100% off shore in hard currency.
2. Avoid paying tax on depreciation of the Rand as capital gains is calculated on the currency you are investing with.
3. Pay on capital gains only (currently 18%) which is then added to income tax.
4. Flexibility to retire where ever.
5. Reduce risk of having most of your savings in one country.

Out RA Drawbacks
1. Pay income tax on whole salary, missing out on the saving.
2. Creditors can claim on you.

In RA Benefits
1. Save on tax payments
2. Creditors cannot claim your savings
3. Forces you to save
4. Prevents you from drawing it early (protect yourself from yourself)

In RA Drawbacks
1. Forced Annuity (2/3rds of your savings paid monthly)
2. Pay tax on annuity income over a certain threshold depending on age.

Feel free to add or correct me.
Click to expand...

To invest directly offshore you need bigger moola, you average LUCKY saffer that has a few thousand per month for retirement savings, and investing overseas was (and maybe still is) not easy or feasible with such amounts (only EasyEquities now has something cheap).

And then there is the point that for most people it's RA or not saving at all (as you say, protect yourself from yourself).

Adding to the protect yourself from yourself, you couldn't sell your RA to buy Bitcoins in December 2017, but you sure as hell could sell your international ETFs/mutual funds or your feeder fund unit trusts to do that.
 
supersunbird said:
To invest directly offshore you need bigger moola, you average LUCKY saffer that has a few thousand per month for retirement savings, and investing overseas was (and maybe still is) not easy or feasible with such amounts (only EasyEquities now has something cheap).

And then there is the point that for most people it's RA or not saving at all (as you say, protect yourself from yourself).

Adding to the protect yourself from yourself, you couldn't sell your RA to buy Bitcoins in December 2017, but you sure as hell could sell your international ETFs/mutual funds or your feeder fund unit trusts to do that.
Click to expand...

I agree with you, but is there a argument that says

If you don't need protection from yourself and you can move your cash offshore, does an RA still make sense?

There are so many variables that you can argue for both and against an RA.
 
Scooby_Doo said:
Here is a question,

Am I insane for not wanting an RA? I am convinced that due to the limit of 30% max international exposure for RAs even with the tax saving I can still get a better return over all if I dump all my saving directly into an international fund outside of SA in hard currency.
Click to expand...

No, nothing wrong with that if thats how you want to do it and you have thought it through.

Now how does someone with R1000pm do it? ;)
 
Scooby_Doo said:
If you don't need protection from yourself and you can move your cash offshore, does an RA still make sense?
Click to expand...

It could yes, there are other variables. Where will you spend your retirement? How will the international markets perform (if you plan to retire in SA)? and others.
 
supersunbird said:
To invest directly offshore you need bigger moola, you average LUCKY saffer that has a few thousand per month for retirement savings, and investing overseas was (and maybe still is) not easy or feasible with such amounts (only EasyEquities now has something cheap).

And then there is the point that for most people it's RA or not saving at all (as you say, protect yourself from yourself).

Adding to the protect yourself from yourself, you couldn't sell your RA to buy Bitcoins in December 2017, but you sure as hell could sell your international ETFs/mutual funds or your feeder fund unit trusts to do that.
Click to expand...

Not arguing your point, but just putting this out there. It's not a bad way for getting into offshore equity.
 
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