Tax rebates are designed by the powers-that-be to encourage ‘good’ behaviour in all taxpayers, and should not be confused with tax evasion. Of life’s two certainties, death and taxes, the latter comes with its much-needed workarounds.
Reducing your tax liability gives you the opportunity to put more of your own earnings into investments that grow your wealth. This is a personal ‘good’. More citizens putting themselves in a position to be financially independent during their retirement is a public ‘good’. Tax incentives on retirement saving is government’s way of connecting the two.
Contributions made to a retirement annuity are tax deductible, meaning the funds you put into your retirement annuity are deducted from your taxable income. Let’s say you earn R240,000 per year and contribute R40,000 of that to your retirement annuity, you would only be taxed on only R200,000. The limits are generous: a maximum of 27.5% of a worker’s taxable income, and no more than R350,000, is deductible per tax year.
In other words, the more you invest, the less tax you pay.
What makes a retirement annuity even more tax-efficient is that returns on investments held within a retirement annuity are exempt from tax. Investors aren’t subject to paying tax on dividends and earnings, nor is there any capital gains tax on their retirement investments. What this means is that the dent that taxes usually inflict on an investment’s growth doesn’t happen in your retirement annuity. That money is left invested and will in time attract more returns and will continue to grow and compound over time.
This benefit cannot be overstated because the best chance at wealth creation is all about reducing drag on investments, and compounding returns. Taking advantage of tax breaks is key to every wealthy investor’s strategy.
As with all tax breaks and other advantages designed to assist investors, they are of no use at all if investors don’t inform and educate themselves and set up their savings and investment plans to take advantage of them.
Markets have their cycles where they underperform or shoot the lights out. These are not in anyone’s control. But, there is much that the investor does control, not least how tax-efficient their investments are and how much money they pay away in fees.
Speak to a 10X retirement expert to find out how you can be a tax-savvy investor. If you already know that you want to access your tax allowances for the current tax year, sign up for a high performing, low-cost 10X Retirement Annuity before the end of February.
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250).
