In this second article in our Tax & Investments series, we deal with tax and endowments.
Let’s start with the basics…
An endowment is a fixed term savings policy with a minimum term of 5 years.
During the 5 year term you can make one withdrawal, which you don’t pay back. The amount you can withdraw is restricted.
With the JSE’s All Share Index at new highs (closed on the 24th of June at 50 890) it is interesting to note that a number of balanced fund managers are holding a larger percentage of cash in their funds. Coronation, Allan Gray and PSG Fund Managers explain their rationale for this in a Moneyweb article. Click to read the article: “Why balanced funds are holding more cash”
As with Life and Living Annuities (“Life and Living Annuities Q&A”), I often find that there is a great deal of confusion and misunderstanding around preservation funds, and how they work.
To address this confusion, we have compiled a brief Q&A which aims to promote a better understanding of preservation funds, how they work, and their benefits…
A retirement annuity can be an excellent vehicle to save for your retirement, particularly if you are a small business owner or a self-employed professional – and therefore do not contribute to a corporate pension or provident fund.
Furthermore, even if you do belong to a corporate pension/provident fund, there may be tax benefits to be gained from contributing to a retirement annuity.
To provide further insights into this, we have put together a Q&A which explains what retirement annuities are, and how they work…
This is a difficult question to answer, and one which many retirees are forced to grapple with.
In terms of current SARS practice, you are allowed to withdraw no less than 2.5% and no more than 17.5% of the capital amount of the living annuity fund per annum (for more information on annuities read our article “Life and Living Annuities (Q&A)”).
Let’s break this down…
For the purposes of this exercise, it is assumed that the growth in the nominal value, i.e. the actual percentage growth earned on the investment of ‘the capital’ in the living annuity fund, will increase in value by 10% per annum. Note, however, that this rate of growth is an assumption which may or may not be achieved.