Published On: Wed, Mar 18th, 2020

Making the most of personal tax incentives

You’ve spent the majority of your life building and nurturing your career; it makes sense that you would want to reap the financial rewards of a sustainable income during retirement. In order to achieve this goal, it’s a good idea to consider making use of existing tax incentives.

Tax efficiency can be seen as one of the main characteristics of a solid financial plan. Still, it seems that many investors don’t account for tax when looking at ways to maximise potential investment returns.

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Saving for retirement

Investors have a choice to invest in the following savings products: retirement annuities, provident funds and pension funds due to tax incentives which include

  1. Annual tax deductions for contributions 
  2. Annual tax deductions whether you invest or directly or an employer contributes on your behalf.

It should be noted that only pension and provident funds can be issuedby your employer; a retirement annuity may be held in your personal capacity. One of the restrictions of a retirement annuity is that you can only access the funds from 55 years of age.  

The benefits of tax-free investing

If you’d prefer to have access to some of your money before retirement age, it’s perhaps worth supplementing your long-term savings strategy by investing in a tax-free investment (TFI).

With a TFI, it’s important to note the following.

  1. Contributions aren’t tax-deductible, but you can benefit in the long term because you won’t pay any tax on interest, dividends or capital gains generated by your investment.
  2. You can invest a maximum of R36 000 per tax year (as of 1 March 2020) and R500 000 over your lifetime. Remember that overcontributions can result in a 40% penalty from SARS.

Set yourself up for success

Investing in both products can be worthwhile if they align with your objectives and the disposable income you have available. Unlike returns you may receive from a unit trust fund, the amount of tax-free funds available to you at retirement are increased.

To maximise the benefits, you can follow these tips to ensure the best possible results.


  • Try and stay invested for the long term


Time can be considered one of the influencers to long-term savings success. This can be attributed to the gift of compound interest, which can increase the growth rate of your money.


  • Preserve your retirement savings


Should you find yourself in a financially sticky situation, it can be tempting to use funds from your savings before retirement age. However, this can ultimately reduce the amount of money you can access when you retire.


  • Increase your contribution to your savings before the end of each tax year


If you want to enjoy the full benefits of your retirement annuity and TFI, it’s in your best interest to increase your contributions before the end of February, which is the end of the tax year.

At the end of the day, you should bear in mind tax implications when making financial decisions that can potentially amplify investment returns. By incorporating product-related incentives into your long-term financial strategies as well, you can improve the chances of a restful, happy retirement.

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