The Two Pot Retirement System in South Africa Debunked what you need to know
Administration fee for withdrawals:
That’s right be aware that insurance companies will charge a fee to process these withdrawals
Our favourite thing to do is pay tax right well this is what you can expect to pay in terms of these withdrawals and be mindful its not cutesy as you are going to be paying Marginal Tax rates ouch
18% for taxable income below R237 100
26% for taxable income above R237 100
31% for taxable income above R370 500
36% for taxable income above R512 800
39% for taxable income above R673 000
41% for taxable income above R857 900
45% for taxable income above R1 817 000
You may find yourself in a higher tax bracket as a result of the withdrawal
Any withdrawal will be taxed in the same manner as a salary or other similar income. This means that you could be pushed into a higher tax bracket for the year of assessment as SARS will include the withdrawal when calculating your marginal tax rate.
How many times can I withdraw in a year
Well it works according to a tax year and you are allowed one withdrawal in any given tax year
What you need to really consider before withdrawing funds:
- The impact it has on your retirement savings as you are reducing your ability to provide for yourself when you need it most at retirement
- Our favourite government entity SARS gets first preference on this withdrawal so if you have outstanding taxes and penalties and apply Sars will deduct their component first and pay the balance not so demure
Examples of what this looks like:
Meet Renai
Take home taxable salary per year R250,000.00
Marginal tax rate 26%
Amount in savings pot on 2
September R5,000.00
Amount keen to withdraw R4,000.00
Administrator fee R300.00
Outstanding tax amount R0.00
Initial Claim: R5 000
Processing Fee: 300
Less Tax (R5 000- R 300) *26% R1222.00
Sars It88: 0
Final Amount paid : R 3478
Meet Lungi
Take home taxable salary per year R675 000
Marginal tax rate 39%
Amount in savings pot on 2
September R20 000
Amount keen to withdraw R18 000
Administrator fee R300.00
Outstanding tax amount R5 500
Initial Claim: R18000
Processing Fee: 300
Less Tax (R18 000- R 300) *39% R6372
Sars It88: 5500
Final Amount paid : R5828
So the reality is not so rosy. Please consider the long term impact of this short term decision and speak to us to help secure a better financial future for yourself.