Pension drawdown tax12/6/2023 ![]() ![]() The retirement fund lump sum benefit for the 2020 tax year is taxed upon retirement using special tax rates, as indicated below:ģ6 000 + 27% of taxable income above 700 000ġ30 500 + 36% of taxable income above 1 050 000 When the individual retires, for example, the compounded or excess contributions that did not previously rank for deduction or which were not exempted, can be used to reduce the gross lump sum figure on which the tax will be calculated, This will be illustrated by way of an example below. ![]() Amounts that are not claimed as a deduction in any year of assessment, as a result of the limitation, are compounded. If the deduction is limited, the amounts are carried forward to the following year of assessment and can be claimed as a deduction in the following year of assessment. However, these contributions, for tax purposes, are subject to limitation. Basically what this means is that an individual is entitled to claim a deduction of contributions made to all retirement funds. Tax will be calculated on the gross retirement fund lump sum benefit after having taken into account, for example, contributions to a retirement fund which did not previously rank for deduction or which were not exempted from normal tax. If you are already retired and in receipt of annuity income from a living annuity arrangement, you are allowed to commute the amount as a lump sum, if at any time the full remaining value of the assets becomes less than R125 000. However, if your total retirement interest in the fund does not exceed R247 500, you may take the full retirement interest as a lump sum.Ĭurrently, when you retire and you are a member of a provident fund or provident preservation fund, your retirement interest is usually paid by way of a lump sum unless the rules of such a fund provide for the payment of an annuity on a member’s retirement. The remaining two-thirds will be paid out in the form of an annuity (a regular pension). When you retire as a member of a pension fund, pension preservation fund or retirement annuity fund and you wish to take a portion of your retirement interest as a lump sum, you are allowed to take (commute) a lump sum equal to a maximum of one-third of the retirement interest in that fund. Tax Treatment of lump sum benefits paid by retirement funds Therefore here are a few tips on the tax in respect of retirement. We believe that your retirement should be enjoyed and that you should not stress about tax.
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