How to minimise my tax?

Is it better to draw from discretionary or retirement fund savings?

- Ettienne Bezuidenhout

I have retirement savings of R21 million in retirement funds and R16 million in discretionary savings (unit trusts, shares, and cash) for a total of R37 million. I require an income of R1 million per annum after tax.

To minimise tax in retirement, is it better to draw funds from discretionary savings, retirement fund savings, or a combination of both?

Dear reader,

To minimise tax in retirement, it's essential to consider the different tax treatments of your retirement funds and discretionary savings. A combination of both might offer the best tax efficiency, but it depends on several factors, including withdrawal rates, income needs, liquidity requirements, and the specific tax rules governing each type of investment in South Africa.

Here's a breakdown of how you could approach it:

Tax treatment of income from retirement funds

Retirement funds in South Africa are tax-deferred, meaning that you do not pay tax while your funds grow, but you will be taxed when you start drawing an income. If you are drawing from a living annuity, the income is taxed as ordinary income according to the personal income tax tables. Currently, this ranges from 18% to 45%.