Question:
My retirement annuity policy matured 2 years ago when I was 55 yo. The investment is below the R247k proposed threshold of 1 March 2016; would I be allowed to withdraw these funds tax-free? I also have a small preservation fund of around R330k - please advise when I would be able to withdraw these funds and what the tax implications would be wef 1 March 2016? Thank you for your advice.
Answer:
Elizabeth, The first R500 000 of any lump sums taken at retirement would not be taxed, assuming you have not previously withdrawn from a retirement fund. If you claimed your retirement annuity, you would then receive the full amount tax-free. Be aware though that you are dangerously close to the annuitisation threshold of R247 500 and could exceed this threshold by 1 March 2016. You would the have to annuitise two-thirds, or wait for a downturn in the market, to fall below the threshold again. If the R330 000 is in a provident preservation fund, you can also RETIRE from that fund, and so receive a total lump sum of R577 000 (R247 000 plus R330 000). You would then only pay tax on R77 000, at 18%, which is R13 860. If the R330 000 is in a pension preservation fund, and you RETIRED from this fund, you would have to use two-thirds to buy an annuity. To avoid this, you can also WITHDRAW from the fund (provided you have not already made a withdrawal from the fund before), but then this will be taxed per the withdrawal lump sum tax table. You would then pay tax of 18% on the entire R330 000 (R59 400).
