Retirement Annuity

Do you pay tax on a retirement annuity?

Even though retirement annuities are tax-efficient investment vehicles, there are instances whereby you would be liable to pay tax on the proceeds of your annuity.

On offshore investments, dividends earned are subject to foreign dividend withholding tax (DWT). While technically, this line item is tax, you would not need to declare this with Sars because your provider would pay this to the relevant authorities on your behalf.

If you have a retirement annuity you are required to convert at least two-thirds of your savings to a pension. You can take the remaining one-third as a lump sum, but there are limits. Lump sums of up to R500,000 are untaxed. However, lump sums exceeding this amount are taxed.

Upon converting your annuity to pension income, the annuity income is subject to income per the standard income tax rates. For withdrawals made before retirement, up to R25,000 is not taxed. Beyond this amount, withdrawals are taxed as well. The table below shows the tax rates contributors are liable to pay when receiving cash from their RA:

Tax rateWithdrawal lump sumRetirement lump su
0%0 – R25,0000 – R500,000
18%R25,001 – R660,000R500,001 – R700,000
27%R660,001 – R990,000R660,001 – R990,000
36R990,001+R1,050,001+

Please note that withdrawals made before maturity are aggregated up to your retirement lump sum, so extra caution is required when making withdrawals.

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