Projected RA value and the annual tax saving on contributions.
Projected value at retirement
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Annual tax saving
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Total contributed
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Your breakdown
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Item
Amount
Worked example
Take an investor under 65 with R100,000 already in a retirement annuity, adding R3,000 a month for 25 years at 9% growth, on a taxable income of R500,000. The existing R100,000 compounds monthly to about R940,841. The 300 monthly contributions, growing as an ordinary annuity, build to about R3,363,366. Together the fund reaches roughly R4,304,207 at retirement, against R1,000,000 of money actually paid in. On the tax side, the R36,000 contributed this year is fully deductible, since it is under the 27.5% and R350,000 caps. At a marginal rate around 31%, that deduction cuts this year's income tax by about R11,160.
Step
Amount
Current value grown over 25 years
R940,841
Contributions grown (R3,000 x 300 months)
R3,363,366
Projected value at retirement
R4,304,207
Total of your own money
R1,000,000
Tax saved this year on R36,000
R11,160
How it is calculated
A retirement annuity is projected in two parts: your current balance compounding to retirement, and your monthly contributions building up as an annuity at the same growth rate. Returns inside the fund are not taxed as they accrue, so the whole balance keeps compounding untouched until you retire. The tax break comes from the contribution deduction, which is limited to 27.5% of the greater of your remuneration or taxable income, and capped at R350,000 a year. The saving equals the fall in your income tax once that deduction is applied, so it is worth more at higher marginal rates. The projection is a gross estimate and does not model fees or the tax you will eventually pay on the income drawn in retirement.
Frequently asked questions
How much tax do I save with a retirement annuity?
Contributions to a retirement annuity are deductible up to 27.5% of the greater of your remuneration or taxable income, capped at R350,000 a year. The saving equals the drop in your income tax once the deduction is applied, so it is larger at higher marginal rates. Growth inside the fund is tax-free and the income is taxed only when you draw it.
What happens if my RA contributions exceed the 27.5% or R350,000 limit?
Contributions above the annual cap are not deductible in the current tax year, but they are not lost. SARS carries the disallowed portion forward and allows it as a deduction in future years when it falls within the limits, or it is taken into account on retirement to reduce the taxable portion of any lump sum you draw.
How does a retirement annuity compare to a tax-free savings account for long-term saving?
An RA gives an upfront tax deduction on contributions, so it is more valuable for people in higher tax brackets who want to reduce income tax now. A TFSA has no upfront deduction but all growth and withdrawals are completely tax-free, making it flexible for non-retirement goals. Many South Africans use both: the RA for the deduction and the TFSA for accessible tax-free growth up to the R500,000 lifetime cap.
When can I access my retirement annuity funds?
South African law requires that RA funds stay invested until you reach age 55, except in cases of emigration, disability, or if the fund value falls below a de minimis threshold. On retirement you may take up to one-third as a lump sum, subject to the retirement lump-sum tax table, and the remaining two-thirds must be used to buy a pension or living annuity.