The South African Revenue Service (SARS) has put several tax incentives in place to encourage us to save more for our retirement and other long-term goals. You forfeit these if you do not make use of them each year. With the end of the tax year approaching, Carla Rossouw explains the differences between the available products.
There are tax benefits associated with both retirement annuities (RAs) and tax-free investments (TFIs), but the benefits are structured differently, and the product rules are quite distinct. Depending on your goals and objectives, there may be a place for both products in your investment portfolio.
Understand your options
Table 1 summarises the key features of the Allan Gray Retirement Annuity and the Allan Gray Tax-Free Investment. A good, independent financial adviser can help you decide which product is most appropriate for your circumstances.
Let the magic of compound interest work for you
The longer you leave your money invested, the harder compound interest can work for you. Graph 1 shows how much an initial investment of R33 000 (the annual TFI contribution limit) could grow over 20 years. The total growth is shown in nominal terms (i.e. includes inflation) and we have assumed an average annual return of 10%.
Make sure you submit your instruction in time
Table 2 provides the cut-off dates for instructions for the 2019/2020 tax year. All payments need to be accompanied by the applicable instructions (applications for new investments and additional contributions for existing investments) and must be submitted by 14:00 on the relevant date.
If you would like to contribute to the Allan Gray Retirement Annuity or Allan Gray Tax-Free Investment from your basic unit trust account (i.e. an account number that starts with AGLP or AGUT) instead of from your bank account, you will need to submit two separate instructions – a withdrawal instruction from your AGLP/AGUT account and a new investment or an additional contribution into your RA or TFI account.