Tax on a lump sum invested

[http://www.shutterstock.com]
A Fin24 user has a lump sum to invest, but wants to do so in a tax efficient way. He writes:

I have R700 000 I want to invest in a retirement annuity (RA) as a lump sum.

What is the most tax efficient way to do this?

I earn about R500 000 per annum and contribute about R68 000 per annum to a retirement fund.

Marc Sevitz  of TaxTim responds:

On earnings of R500 000 per annum the maximum allowed as a deduction for retirement annuity fund (RAF) contributions is 15% or R75 000 per year.

With R68 000 already being contributed per year, that only leaves R7 000 of the R700 000 to be allowed as a deduction, of which R1 800 will be carried over each year.

So there is limited opportunity for tax saving on a large RA investment.

However, once the RA pays out to the taxpayer, the amounts not allowed as a deduction, will be used to reduce the overall payout and therefore reduce the tax paid on the final lump sum.

- Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

ZAR/USD
17.20
(-0.08)
ZAR/GBP
22.49
(-0.04)
ZAR/EUR
20.24
(-0.11)
ZAR/AUD
12.26
(-0.24)
ZAR/JPY
0.16
(+0.03)
Gold
1973.20
(-0.03)
Silver
24.23
(+0.10)
Platinum
923.00
(+0.49)
Brent Crude
43.86
(+1.45)
Palladium
2102.99
(+1.00)
All Share
56217.63
(+0.70)
Top 40
51927.74
(+0.69)
Financial 15
9887.70
(+0.84)
Industrial 25
75005.25
(+0.36)
Resource 10
57176.04
(+1.04)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes. We need the money.
11% - 830 votes
It depends on how the funds are used.
74% - 5475 votes
No. We should have gotten the loan elsewhere.
15% - 1096 votes
Vote