Retirement fund withdrawals and tax

With tax season in full swing, it’s a good time to review the tax implications of retirement fund withdrawals says Carla Rossouw (pictured), tax specialist, Allan Gray.  The 2014 National Budget introduced changes to the retirement tax table, namely that from 1 March 2014, the tax-free amount members and beneficiaries can take as a lump sum pay-out from retirement funds increased from R315 000 to R500 000.


The increased tax-free allowance, however, should not tempt you to reduce the money you need to put aside to fund a monthly income in retirement, particularly as it is now quite common for people to live for a long time after they retire.


The risk that you outlive your savings is real and therefore the financial decisions made when you retire require a sober assessment of your capital, your time horizon, your appetite for investment risk and the returns you will need to fund your lifestyle.


If you are not planning to spend the tax-free lump sum immediately, depending on your circumstances, it may be better to buy a living annuity and take a small or zero lump sum, or to take the full tax-free lump sum and invest this directly. Simply investing the tax-free lump sum gives you the maximum discretion on how and when to spend it. Living annuities have advantages too: in a living annuity you will not pay tax on the returns you earn, only on the money you draw as an income. Living annuities are also excluded from your estate, so they do not attract estate duty. Living annuities restrict how much you may take out each year, which could be positive for discipline (also for your heirs’ discipline) or negative if you need money in an emergency.


A good independent financial adviser can help you to work through these decisions; it is also often helpful to ask for more than one opinion.


Tax calculations on lump sums from retirement funds after 1 March 2014 apply a higher lifetime cap but are not retrospective. When a retirement fund member or beneficiary takes a cash lump sum from a retirement fund at retirement or on the death of the member, the retirement tax table prevailing at the time determines the amount of tax to be paid.


All the benefits received or accrued on or after 1 October 2007 are added together to calculate how much tax is owed. A portion of this amount is tax free. This tax-free amount is a ‘once-in-a-lifetime’ benefit, irrespective of the number of retirement funds to which a taxpayer belongs, and is reduced by any retirement lump sums or withdrawals taken previously, for example, when the taxpayer changed jobs and took a cash lump sum.

Table 1 tax and retirement


Table 2 tax and retirement

star Treat your friend to lunch at Slug n Lettuce at half prices.The pub is offering a 50% discount on all burgers between 12pm and 4pm.

#PickYourPoison with Tiger's Milk every Tuesday with their 2 for 1 beer wine and cocktails special. Enjoy 2 for the price of 1 from 5 - 7 pm.

Once new burial options are introduced, a portion of the daily dead may find new resting grounds outside of burials and cremations. Moneybags journalist, Isabelle Coetzee, has a look at alternatives and their costs.

Seasons are changing and with it the increased chances of snotty noses and chest infections. But some people believe that with a tiny prick you could avoid a trip to the doctor this season. There are however many misconceptions around the flu and its vaccine. As in any medical case, seeking trusted sources and facts behind common assumptions and practices is especially important. Let’s see if you have all your flu-facts straight with these myths and truths.

Waking up to a lungful of second-hand smoke is the wrong way to start your Easter weekend. Moneybags journalist, Isabelle Coetzee, finds out how you can handle the situation.

star Celebrate your birthday on top of Table Mountain. The Cableway offers you a free return ticket to one of the world's wonders to make your day extra special.

These days, the word ‘surrogacy’ often tends to be attached to the name of someone famous like Kim Kardashian, Nicole Kidman or even Elton John. In addition to the process being glamourised we often hear that these surrogates are also being paid big money. But is this an accurate depiction of surrogacy?

Breastfeeding is both beautiful and natural -  or so they say. However, it could also mean rock-hard painful breasts, leaking through breast pads and spraying milk as you’re trying to get your baby to latch. Especially if you’re one of those women who have a surplus of breast milk.