How your RA tax saving is worked out
SARS lets you deduct retirement contributions from your income before tax. Money you put into an RA reduces your taxable income, so you pay less tax, and the saving is worked out at your marginal rate.
- Your deduction limit. You can deduct up to 27.5% of the greater of your salary or taxable income, with a limit of R430 000 a year. This covers all your retirement contributions together, including pension and provident funds.
- Tax before the RA. The calculator works out your tax with your existing contributions only.
- Tax with the RA. It adds the RA contribution, applies the limit, and works out your tax again.
- Your saving. The difference between the two tax figures. The effective cost of your RA contribution is what you put in minus the tax you save.
Contributions above the limit are not lost. They carry forward to the next tax year and can be deducted then.
Example: R3 000 a month into an RA
Busi earns R600 000 a year and has no pension fund at work. She starts contributing R3 000 a month, or R36 000 a year, to an RA.
Her limit is 27.5% of R600 000, which is R165 000, so the full R36 000 is deductible. Her taxable income falls to R564 000, and her tax for the year drops from R132 907 to R119 947. She saves R12 960 in tax, so the R36 000 contribution effectively costs her R23 040.
Common questions
How do I get the tax saving?
If your employer deducts the RA from your salary, the saving shows in your monthly PAYE. If you pay the RA yourself, you claim it on your tax return and the saving usually comes back as a refund.
When can I access my RA?
From age 55. Part of each contribution also goes into the two-pot savings pot, which you can access before then.
Is it worth it if I already have a pension fund?
It can be, if your total contributions are still below the 27.5% limit. Enter your existing contributions and the calculator shows how much room you have left.