Retirement Annuity disallowed payments

[tRoN]

Now that SARS will cap the tax deductible portion of payments into an RA what happens to the amounts exceeding the cap?

Is there any advantage of paying higher than what's tax deductible I.e just using the RA for discipline savings.

I am getting conflicting advice. Will these amounts become part of the tax free allowance on maturity or are these amounts also capped at the end.

 

[supersunbird]

Now that SARS will cap the tax deductible portion of payments into an RA what happens to the amounts exceeding the cap?

Is there any advantage of paying higher than what's tax deductible I.e just using the RA for discipline savings.

I am getting conflicting advice. Will these amounts become part of the tax free allowance on maturity or are these amounts also capped at the end.

Isn't there already a limit of 15% on of non retirement funding income? That carries over to future years/retirement, so there is a "cap" currently.

First of, from what I understand the proposed limit will be on contributions for OVER R350 000 a year. Not salary, total retirement contribution (that would be contributions of around R29166 per month). It will be up to 27,5% of salary, It will only take effect from March 2015 or 2016 (they are still deciding, mentioned somewhere it this weeks Personal Finance: dhttp://www.iol.co.za/business/personal-finance).

Don't know if there will be carry over yet.

 

[tRoN]

So if I contribute more than R350k then although there is no tax deduction allowed, what happens later on retirement?

 

[bilal786]

it will allowed as a deductions when you take out ur RA

 

[supersunbird]

So if I contribute more than R350k then although there is no tax deduction allowed, what happens later on retirement?

I don't know, they are probably still working on all the details since it at least a year and a half away. And what are the chances of you saving R29 166 per month into a RA anyway? So its a moot point.

 

[systemofpurplelimpminion]

Now that SARS will cap the tax deductible portion of payments into an RA what happens to the amounts exceeding the cap?

Is there any advantage of paying higher than what's tax deductible I.e just using the RA for discipline savings.

I am getting conflicting advice. Will these amounts become part of the tax free allowance on maturity or are these amounts also capped at the end.

Normal tax laws apply as usual aka income tax
RA's and retirement funds are only vehicles of tax postponement in the hope for reduction, not get rich quick

 

[tRoN]

Normal tax laws apply as usual aka income tax
RA's and retirement funds are only vehicles of tax postponement in the hope for reduction, not get rich quick

Just confirmed with an accountant.

The disallowed payments are given out tax free on retirement as of current tax laws.

 

[supersunbird]

Just confirmed with an accountant.

The disallowed payments are given out tax free on retirement as of current tax laws.

That is correct. And hopefully similar applies to the new 27.5% that will be implemented March 2015/16.

The new law is attempting to make Pension Funds, Provident Fund and Retirement Annuities to all work the same. Which I think is a good thing.

 

[Freshy-ZN]

In simple terms there is an annual limit to contributions which will give you a tax break in the current financial year. Over contributions will be carried over and accumulated to give a larger tax free lump sum at retirement.

 

[Diego Tristan]

In simple terms there is an annual limit to contributions which will give you a tax break in the current financial year. Over contributions will be carried over and accumulated to give a larger tax free lump sum at retirement.

Not just that but your annual undeducted contributions are carried over to next year (to be theoretically correct) and if not utilised will be permissable as a deduction in the year your RA Fund pays out the lump. The annual contributions are limited to a deduction of 15% of your taxable income (excluding salary and other retirement funding employment income). Or if higher, R3500 minus current PF deduction or lastly R1750... so deduction is the highest of the three. (15%, R3500-current PF deduct, straight R1750).

 

[Freshy-ZN]

The point is over contribution is not a waste as a lot of people believe.

 

[supersunbird]

The point is over contribution is not a waste as a lot of people believe.

Correct.

Apart from the undeducted contributions carrying over, the retirement savings growth also does not incur Dividend Withholding Tax or Capital Gains Tax. Yes, you are taxed on the monthly pension income once you retire but you get additional tax rebates over cetain ages,. I'd rather be taxed on a big pot of retirement money than be taxed now and have a smaller pot (because it didn't have compound growth on the taxed growth).

 

[tRoN]

Correct.

Apart from the undeducted contributions carrying over, the retirement savings growth also does not incur Dividend Withholding Tax or Capital Gains Tax. Yes, you are taxed on the monthly pension income once you retire but you get additional tax rebates over cetain ages,. I'd rather be taxed on a big pot of retirement money than be taxed now and have a smaller pot (because it didn't have compound growth on the taxed growth).

So you think it's worth loading the RA with some extra cash as a lump sum and then using that later for retirement as tax free.