How much should I put towards my RA to offset my tax liability?


Question:

I have 2 mil in a living annuity drawing down 2.5 percent a month, plus 1.5 mil in a unit trust currently paying + - 15 percent per year with dividends reinvested, also 1.5 mil in savings rowing at 6 percent. How much should I pay per month towards an retirement annuity in order to offset my annual tax liability?

Answer:

Alex, Your question leaves us a bit mystified. You are not permitted to draw down on your living annuity at the rate of 2.5% per month (the annual maximum is 17.5%); also, unit trusts don't "pay out" on an annual basis, although you may see an annual capital appreciation (or depreciation). You are liable for tax on the interest income earned within your unit trust investment, and you will be notified of that amount by the unit trust manager. But it won't be at the rate of 15% pa. You can presently deduct 15% from your non-retirement funding income in respect of your annual retirement annuity contributions. Non-retirement funding income would include the income you do receive from your living annuity, plus the interest income you receive within your unit trust and from your savings account (less the R23 800 interest exemption - you cannot claim a deduction on income that is not taxed).

The information and answers supplied in this section do not constitute advice as defined by the Financial Advisory and Intermediary Services Act, 37 of 2002.


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