Retirement Annuities have for a long time been to the go-to investment for retirement savings. Now you can add this neat tax-saving beaut of an investment to your EasyEquities portfolio, with some added cost saving benefits you won't find anywhere else. Our Special Ops (yes that's a real thing) guy Bradley Kaplan, breaks down RA's - now available on EasyEquities. #moreismore
What is an RA?
An RA account is a tax efficient way of investing for retirement. The contributions made into the RA account are pre-tax contributions, meaning that the contribution is made off your salary before tax is deducted or can be claimed back from SARS if a contribution is made in one’s own capacity outside of their employment. The investment is free of tax on interest and dividends throughout the lifetime of this investment and tax is payable upon retirement when the investment is withdrawn (on the growth).
What are the benefits of having an RA on EasyEquities?
The biggest constraint when it comes to RA accounts, are the minimum costs and investment size that comes with the RA investments. EasyEquities has managed to fit RA’s into their business model, which means no minimum investment size and no minimum cost. Another benefit is the transparency of the investment as the member of the RA fund can view their investment with live values at any time. Finally, a member of the fund may choose their investments with their discretion within the rules of the RA Fund.
Who is best suited to RAs?
RA’s are tax efficient products and can be beneficial to all investors. The money cannot be accessed before retirement and, so investors who are closer to retirement will have a shorter effective lock-in period until they can received their funds. Investors with a higher current tax rate than they will have at retirement will also benefit more from an RA.
What if I’m investing in my TFSA as a retirement plan – should I still look at an RA as an addition to my savings? Why?
TFSA are effective ways of investing for retirement. The one difference is that the annual contribution limit is R33 000 for TFSA accounts and R350 000 or 27.5% of your annual salary (the lower of the two) for RA so higher contributions can be made into your RA account on an annual basis. The second difference is a lifetime limit, a TFSA account currently has a lifetime limit of R500 000, therefore after approx. 16 years of you contributing annually, you will have to stop making contributions to your TFSA account, where as there is no lifetime limit to RA contributions. The most notable difference is that your RA contributions are pre-tax contributions and your TFSA account is post-tax contributions, this means that a larger sum of money can be contributed to your RA than your TFSA account.
How does RA work with tax?
As stated above, RA contributions are pre-tax contributions, therefore if you earn R10 000 a month gross, you will pay approx. R664 in tax. Your net salary (the amount of money you take home) will be approx. R9336, So with a R300 contribution to your RA account, your net salary will be greater than R9036 (R9336 - R300) as you will receive the taxable portion of your contribution back as a tax rebate, in other words, your contribution will effectively be pre-tax. Whereas with a R300 contribution to a TFSA account, your net salary will be R9036.
What is the strategy behind the EAM RA bundles and how will I know which one is for me?
EAM have made it easy for investors to choose which bundle to invest in. There are risk brackets associated with each bundle that an investor can relate to their risk profile. EasyEquities makes it easy for investors to find out their risk profile through Riskalyze, a tool that determines your risk profile through a series of questions.
Follow Brad on Twitter: @iambkaplan