Thank you to your query. I want to begin off by distinguishing between withdrawing from a fund and retiring from a fund.
People usually select to withdraw from retirement funds after they are underneath the age of 55, in want of money, and the place they haven’t any different discretionary investments to dip into.
Withdrawing from a retirement fund is a dearer approach of accessing your capital.
When you withdraw, you’ve entry to 100% of the cash in the fund. However, when withdrawing from a preservation fund, remember that you solely have one alternative for withdrawal – after which you have to to attend till age 55 to retire from the fund.
On the different hand, you’ll be able to retire from a fund from age 55 onwards.
With a pension preservation fund, you’ll be able to take as much as one-third in money (which is what you talked about you are contemplating) which, whereas nonetheless topic to tax, shouldn’t be taxed as closely as a withdrawal.
Having unpacked the distinction between withdrawing and retiring from a pension preservation fund, let’s take a look at the tax variations which are greatest defined utilizing an instance.
Assuming you haven’t made a earlier withdrawal from your fund, you may be permitted to make a withdrawal. However, you probably have made different withdrawals from different retirement funds, the withdrawal quantity can be aggregated for tax functions.
If you’ve by no means made a withdrawal earlier than, the tax desk that can apply to your present withdrawal is as follows:
| Taxable earnings | Rate of tax (R) |
| R1 – R25 000 | 0% |
| R25 001 – R660 000 | 18% of taxable earnings above R25 000 |
| R660 001 – R990 000 | R114 300 + 27% of taxable earnings above R660 000 |
| R990 001 and above | R203 400 + 36% of taxable earnings above R990 000 |
No earlier withdrawals: If you’ve made no earlier withdrawals from a retirement fund, you may be taxed as follows:
(R700 000 – R660 000) * 27% + R114 300 = R125 100
This means you’ll be capable of stroll away with a web of tax quantity of R574 900.
Previous withdrawals: This instance serves to display how you may be taxed assuming you’ve beforehand made a withdrawal of R100 000 from a retirement fund. In such circumstances, your tax can be calculated as follows:
R700 000 + R100 000 = R800 000
(R800 000 – R660 000) * 27% + R114 300 = R152 100
You would even have paid tax on this R100 000 at the time of your withdrawal (if completed after September 2009):
(R100 000 – R25 000) * 18% = R13 500
The R13 500 can be subtracted from R152 100, which is able to go away you with a tax invoice of R138 600. You may have an after-tax quantity of R561 400.
Am I entitled to the R500 000 tax-free allowance?
As you’ll be able to see, the R500 000 portion that’s taxed at 0% is barely relevant while you retire from the fund and never while you withdraw from the fund. On withdrawal, solely the first R25 000 lump sum can be taxed at 0%.
Can I go away the steadiness in the above fund?
You talked about that you just are at the moment age 55 which implies that you need to have the choice to retire from the fund. Should you retire from the fund (versus withdrawing), it is possible for you to to take out one-third of the money which is consistent with your intention. The remaining two-thirds should be used to buy an annuity. On the different hand, in case you select to withdraw from the fund, you may be permitted to depart the remaining steadiness invested in the fund.
The profit of retiring from the fund is that the relevant tax tables are extra beneficial:
| Taxable earnings | Rate of tax (R) |
| R1 – R500 000 | 0% of taxable earnings |
| R500 001 – R700 000 | 18% of taxable earnings above R500 000 |
| R700 001 – R1 050 000 | R36 000 + 27% of taxable earnings above R700 000 |
| R1 050 001 and above | R130 500 + 36% of taxable earnings above R1 050 000 |
No earlier withdrawals: This implies that if that is your first lump sum from a retirement fund, your tax can be as follows:
(R700 000 – R500 000) * 18% = R36 000
You may have an after-tax quantity of R664 000.
Previous withdrawals: If, for instance, you’ve made a earlier withdrawal of R100 000, your tax can be calculated as follows:
R700 000 + R100 000 = R800 000
(R800 000 – R700 000) * 27% + R36 000 = R63 000
You would even have paid tax on this R100 000 at the time of your withdrawal (if completed after October 2009):
(R100 000 – R25 000) * 18% = R13 500
The R13 500 can be subtracted from R63 000, which is able to go away you with a tax invoice of R49 500. This means you’ll have a post-tax quantity of R650 500.
Since there’s a main tax saving by retiring from the fund as a substitute of withdrawing from the fund, it is very important perceive what your choices are with the the rest of the preservation fund.
You have the choice to buy a life annuity from an insurer, which is able to offer you a set earnings for all times, or you should purchase a dwelling annuity from which you have to to attract an earnings of between 2.5% and 17.5% of the capital quantity per 12 months. Naturally, the decrease the earnings drawn, the longer the funding will final, and nothing prevents you from reinvesting the 2.5% earnings that you just obtain from it.
It is essential to notice that the earnings obtained from such an annuity can be topic to your private earnings tax price, retaining in thoughts that the earnings would possibly push you into the next tax bracket. Should you retire from the fund, the earnings rand quantity from the preliminary funding worth (engaged on an quantity of R1 400 000) will fall someplace between R2 916 and R20 416 per thirty days.
As is obvious from the above, it is very important rigorously think about the choices obtainable to you earlier than making a call on tips on how to entry the funds.
