Tax Deductible Retirement Plans offer many options and it is best to know well in advance the opportunities that exist. There are many things to consider when you are creating a formal plan to save for your retirement and to get the most out of every rand invested they need to all work together. Major considerations should include your time frame – as in how long it is until you retire, and starting early is always better – your current income and essential expenditures, Â probable inflation, your personal tolerance for risk and the tax implications of your investments.
How New Laws are Affecting
Tax Deductible Retirement Plans
One thing you may or may not be aware of is that as of March 1, 2016 things changed quite dramatically when it comes to that final consideration we just mentioned. The Taxation Laws Amendment Bill, 2015 was enacted that day and it brought some long awaited changes that should be beneficial to most people still in the retirement savings process.
In the past the tax regulations that applied to various types of retirement plans was rather scattered. Prior to the Bill’s enactment an employer’s contribution to a pension fund or a provident fund could not be taxed as a fringe benefit for the employee so there was a define tax benefit there over many other types of retirement fund, especially some of those people took on privately.
What the bill does however is harmonize the tax treatment of contributions to pension funds, provident funds and retirement annuity funds. This means that retirement fund taxation has certainly been simplified if nothing else.
This is important because pension and provident funds provided by employers have become outdated and scarce even, as the modern career track in any field rarely ever spans the four decades of service with the same employer it once did.
Now that the tax deduction on contribution is the same, irrespective of fund choice, South Africans have been put in a better position to build up a varied portfolio of retirement annuity investments without having to worry about having to stick with the same employer to maximize their retirement nest egg.
Alternatives to Company Pensions That Still Bring Tax Benefits
So, if you are not necessarily going to be reliant on an employer administered fund anymore what are the best choices in retirement planning that will (hopefully) provide you with the income needed after you stop working to maintain your current lifestyle and still get some tax breaks now, something that we don’t get too many of here?
Your basic options will include:
- Retirement and living annuities
- Unit Trusts
- Fixed deposit and money market accounts
- Endowment Policies
- Stock Market Investments
All of these offerings are rather different of course. Retirement annuities are essentially the same thing as company funded plans, it is just that it is the employee making all of the contributions. Unit trusts are simple and can be funded at a more modest cost but you do have to rely on the stability and skill of the fund managers to make money. Stocks can be risky, but a sensible stock investment plan can bring very good returns. Money market accounts can be a great hedge against inflation.
So how do you decide what’s best for you? The most sensible thing to do is plan a formal sit down with a financial adviser for at least a consultation. After that you may be able to manage most aspects of it alone, but starting off with the right guidance is a big help.Having the right guidance in place will ensure you make the most of a Tax Deductible Retirement Plan.
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