You have until the end of the month to maximise your tax incentives and be a tax-savvy investor.
With the tax-year end nearing, let’s summarise the main benefits of tax-free investing.
Benefit from generous tax savings by contributing to retirement funds
Your contributions to retirement funds, like Retirement Annuities (RAs), are tax deductible up to 27.5% of your total taxable income/remuneration, capped at a maximum of R350 000 p.a.
This means that you can reduce your tax liability by contributing to RAs. However, few investors know that they can enjoy further tax deductions by re-investing the taxes that they saved in the first place. The re-investment of the tax saving, on top of a tax saving, results in a compound savings effect that few, if any other, investments can achieve.
For Example:
| Saving in a non-tax-deductible investment | Saving in a tax-deductible RA |
Taxable income | R 1 000 000 | R 1 000 000 |
Contribution to investment | R100 000 | R100 000 |
Tax liability | R297 811 | R256 811 |
Tax saving reinvested in current year | R0 | R41 000 |
Tax saving on tax saving reinvested in following year | R0 | R16 810 |
Investment after 2 years (contributions only) | R100 000 | R157 810 |
Other benefits of investing in an RA include tax-free growth within the investment, protection from creditors and the fact that an RA doesn’t form part of your estate for estate duty and executor’s fee purposes.
Watch your savings grow in a tax-free savings plan
You can contribute a maximum of R36 000 per tax year, with a lifetime contribution limit of R500 000, to a Tax-Free Investment Plan (TFIP).
Your growth in this product is tax-free, and you will enjoy the added benefit of compound interest when you leave your money to grow over the long term. This makes a TFIP the ideal investment vehicle for your child’s education or to leave a legacy to a grandchild.
A TFIP also offers the flexibility to access your savings whenever needed.
Contact Annemie Nieman a wealth manager & financial planner at PSG Wealth to maximise your tax incentives before cut-off date for contributions, on 24 February 2023.
Tel: 010 595 2642
Email: annemie.nieman@psg.co.za