introduction:

When it comes to calculating tax deductions for contributions made to retirement funds, there are certain rules and limits that must be taken into consideration. In South Africa, SARS provides tax deductions for contributions made to pension funds, provident funds, and retirement annuities.

Provident fund:

For provident funds, contributions made by the individual, their employer, or both, are tax-deductible up to a certain limit. The current limit for tax-deductible contributions to provident funds is 27.5% of the greater of the individual’s remuneration or taxable income, with a maximum of R350,000 per year. These contributions are calculated on a cumulative basis, which means that any unused portion of the limit can be carried forward to the next year.

Food for thought:

When calculating the tax deductions for contributions made to these retirement funds, individuals should keep in mind that there are limits on the total amount that can be claimed for all retirement funds combined. Furthermore, contributions made to any of these funds will affect the individual’s threshold limit of the other funds. In addition to these types of funds, Tax-free savings account is not deductible from taxable income, but the withdrawals are tax-free.

CONCLUSION:

In conclusion, contributions made to pension funds, provident funds, and retirement annuities can be tax-deductible up to certain limits, with the current limits being 27.5% of the greater of the individual’s remuneration or taxable income, with a maximum of R350,000 per year.  It’s important to consult a financial advisor or SARS for the most up-to-date information and guidance on how to calculate and claim these deductions as the rules and limits are subject to change.

You can read about the various funds in our Part 1 by clicking here

The video below explains the above with examples for you.

Podcast