Question:
Hello I have changed employers and therefore have to withdraw from a provident fund. I have been told that the provident sum can not be transferred to a retirement annuity but must be taken as a cash sum. Is this correct? Are there tax implications if I take the cash and then invest in an RA retirement annuity myself? Thank you.
Answer:
Nicholas, That is not true in terms of our tax law: you are allowed to transfer a provident fund tax-free into a retirement annuity (unless your specific fund rules stipulate otherwise). If you take cash you will be taxed per the withdrawal lump sum tax table (no tax on the first R25 000, 18% tax on the balance to R660 000, 27% on the balance to R990 000, and 36% on the remainder). You can also invest the withdrawal net of tax in a retirement annuity, but obviously this is less tax effective than transferring directly across.
