Tax-free options for RAs

As a 64-year-old retiring next year, are there tax-free investment options available when withdrawing from my retirement annuity to help reduce SA Revenue Service (Sars) taxes?

- Nelis Brink

When drawing from your retirement annuity (RA) at retirement, you can use a few strategies and tax-efficient options to minimise or defer your tax liabilities. While there isn't a way to eliminate all taxes, a few methods exist to optimise your withdrawals and use tax-free or tax-efficient investment vehicles for subsequent growth.

Let's break down these strategies:

Understanding the tax-free portion at retirement

Upon retirement, you can take a portion of your RA as a lump sum, and the rest must be used to purchase an annuity to provide you with a regular income.

Lump sum withdrawal at retirement:

The first R550 000 of your lump sum withdrawal is tax-free. This is applicable if you haven't previously utilised this tax-free amount in any other retirement withdrawal (e.g., withdrawals from a provident or pension fund).

Tax on lump sum withdrawals (2024 table):

→ R0 - R550 000: 0% (tax-free);

→ R550 001 - R770 000: 18%;

→ R770 001 - R1 155 000: 27%;

→ Above R1 155 001: 36%.

How to maximise tax-free amounts and minimise Sars taxes

To minimise taxes when withdrawing from your RA, you can:

→ Use the tax-free lump sum efficiently: Take advantage of the R550 000 tax-free portion.

You can withdraw the entire amount tax-free if your RA is relatively small and within the de minimis threshold (R247 500 or less).