Tax on a lump sum invested

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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

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