Thanks for your question. RA is an authorized retirement fund regulated by the Pension Fund Act and, as directed by Alan Gray, investors are not allowed to access funds held in this type of investment structure (subject to certain exceptions) before the age of 55.
Unfortunately, many investors are not aware of this when they first set up their RA, only to find out later that their funds are not accessible before the age of 55 and, understandably, believe the verdict to be unfair.
However, it is important to understand the reasons for this judgment.
Significant tax benefits
To encourage South Africans to save for their retirement, the government offers several tax breaks for retirement fund investors.
In the first instance, investors are allowed to invest up to 27.5% of their taxable income on a retirement anniversary on a tax deductible basis, up to a maximum of R350 000 per year, which is a significant advantage.
To illustrate how this works – if your taxable income for the year is R500 000 and you invest R100 000 in your RA, your taxable income will come down to R400 000. You only have to pay tax on that small amount. In other words, having an RA means you pay less tax now.
In addition to being able to invest effectively with tax-free money, RAs are exempt from tax on dividends and interest and do not pay any capital gains tax on the increase in investment earned.
In return for these tax rebates, the government has enacted legislation to ensure that funds are allocated for retirement in an effort to ease the burden on the state.
When you retire from RA, you will have the option of taking up to one-third of the cash, while the balance must be used to purchase an annual income. In the absence of such legislation, investors may be tempted to use the funds for other purposes, which, in turn, may adversely affect their ability to retire comfortably.
As mentioned above, there are some exceptions to accessing RA funds before the age of 55.
Prior to 1 March 2021, investors were not allowed to access their RA funds unless they were 55 years of age or older, the value of the funds was less than R7 000, the investor became physically disabled, or the investor formally relocated financially through the South African Reserve Bank. By Serb) process.
With effect from 1 March 2021, the law was amended to raise the minimum age for accessing RA funds to 55, or the minimum fund for accessing RA before the age of 55, if the investor is physically disabled. 000
More importantly, the Serb Financial Immigration process was discontinued and, if any investor wants to access their RA funds, they must be a non-resident for the purpose of taxing South Africa for three consecutive years on or after March 1, 2021. .
While we understand your frustration at not being able to access your own funds, it is important to understand the regulatory framework of the retirement fund environment and be aware of the significant tax benefits that you have already benefited from investing through RA. We strongly recommend that you seek the advice of an independent financial advisor who can prepare an overall financial plan for you and who can guide you through the difficult financial times you are facing.