Tax deduction on contributions:
Retirement Annuity contributions are tax deductible under S11(k) of the income tax act. Contributions are deductible to a limit of 27.5% of taxable income, capped at an annual limit of R350 000. Contributions in excess of the annual limits will be rolled over to future years.
Taxation of benefits:
At retirement (permitted from age 55 onward), you must use at least two-thirds of your benefit to buy an annuity if the RA value is more than R247,500. The annuity income is subject to income per the standard income tax tables. The tax is deducted per the annuity provider on the assumption that this is your only income. If not, you need to request a tax directive from SARS, for the annuity provider to deduct tax at a different rate.
Any lump sum you take will be taxed per the retirement lump sum tax table. It provides as follows: the first R500,000 is not taxed, the balance to R700,000 is taxed at 18%, the balance to R1,050,000 at 27% and any amounts above that at 36%. This table is applied to the aggregate of your retirement fund lump sum benefits since 1 March 2009. The tax calculated in this way that relates to previous lump sums (from another RA or a workplace pension or provident fund) is deducted from the total tax payable to arrive at the tax payable on the current lump sum. In other words, if you have already claimed R500,000 in retirement fund withdrawal benefits before claiming your RA, you would no longer qualify for the R500,000 tax-free portion.
