55 is the legislative age at which retirement from your retirement investments becomes an option. Yes, it is all there in the name and you probably already know this. However, there are a few things about retirement annuities (RAs) that you might not know, before and after and celebrating your 55th birthday.
South African retirement annuity
When you reach the age of 55, you can choose to take one-third of your retirement fund value as a cash withdrawal
- You will be taxed on this lump sum withdrawal by the South African Revenue Service, of course. (See the tax rates here)
- The remaining two-thirds must be used to purchase an annuity (usually living or life annuity) that will provide a pension income for your golden years.
- This money will need to be paid out into a South African bank account before it can be moved offshore.
Before the age of 55, you cannot access the funds in your retirement annuity
- The exception to this rule is if you become completely disabled, or you have completed the process of tax emigration to have your tax status changed from resident to non-resident and you have maintained such tax non-resident status for at least three years.
- Generally, when an individual (below the age of 55) decides that they’re going to move abroad permanently they can, in theory, cease South African tax residency the day they leave the country.
- Once you have become a non-resident for tax purposes, you simply have to wait out the three year period and you’ll be able to access your RA savings.
Before the age of 55, you are only allowed to access your RA in full where the amount is less than R15 000
If you are over the age of 55 and already living abroad, you do not have to tax emigrate in order to access your RA if the value of your RA is R247 500 or less.
- After the age of 55, you are allowed to access the full amount in your RA where it is less than R247 500.
- You will be charged tax on this withdrawal, of course, so don’t forget to factor that into your calculations.
Where the value of the fund is more than R247 500, you will be forced to use two-thirds to purchase an annuity, and will only be able to take one-third as cash, less tax
Long story short? If you have already reached the age of 55, the three year waiting period does not apply to you, as long as the value of your fund is below R247 500. Once you’ve cashed in your funds, and paid your tax, this money will need to be paid into a local bank account before you’ll be able to shift it offshore.
If you have to do it this way, and you’re going to be receiving your retirement income from South Africa while living abroad, you would be smart to space out your pay-outs. Instead of choosing a monthly payout, it can save you a lot of time and money in forex fees if you set the frequency to annual or bi-annual payouts.
- Don’t forget that pension income is taxable in South Africa. Where you land up paying tax on your pension income in both the country you’re living in, and South Africa, there is relief available in the form of a tax refund.
FinGlobal: cross-border financial service specialists
Need a hand sorting out your cross-border retirement plan? We’re ready to assist you in unlocking and transferring your funds abroad. Whether you need assistance with tax emigration, forex, retirement annuity withdrawal or tax refunds, FinGlobal has a dedicated team of specialists waiting to simplify your tax affairs and reduce your stress levels.
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