SARS has recently implemented the Two-Pot Retirement Fund System withdrawal requests. From 1 September 2024 you can access a portion of your retirement savings with this new framework. While this system introduces flexibility, it’s important to understand the rules, tax implications, and long-term effects of withdrawals before making a decision. This guide outlines everything you need to know about accessing your retirement savings.
Understanding the Key Features of the Two-Pot Retirement Fund System
The Two-Pot Retirement Fund System is designed to divide your retirement contributions into two components:
- Savings Component:
- This represent 1/3 (a third) of your retirement contributions.
- You can make one withdrawal per year, a minimum amount of R2 000.00.
- Retirement Component:
- The other 2/3 is locked away in your retirement component and cannot be accessed until retirement.
- These funds are strictly preserved to ensure financial stability during retirement.
Tax Implications of Withdrawals
The Tax Implication of a withdrawal is that the withdrawal is taxed at your marginal tax rate. Reasons why you should care:
- Higher Tax Brackets: When you earn in a higher tax bracket your tax liability will be higher compared to tax payable on your return upon retirement.
- Long Term Loss of Value: You lose value in what you have already contributed up until the point of withdrawal.
Please always evaluate whether the immediate financial need justifies the long-term impact on your retirement fund.
Careful Planning Before Withdrawals is Essential
We contribute to our retirement annuity for the day we no longer receive our salary, a lot of people already contribute less then what is required and upon retirement we might not have enough to cover our living costs. Reckless withdrawals will jeopardize your future financial security.
We should be putting money away in a savings account for emergencies. It is vitally important to ensure that when you make a withdrawal that it is for a significant emergency, as we are delving into our retirement and additional to that we are paying tax at marginal rates, the decision might have lasting effects. Don’t make the decision to jeopardise your retirement if it is not for a good reason. Once you have submitted a withdrawal you cannot cancel it.
When you decide to withdraw always ensure that you speak to your registered Tax Practitioner and your Financial Advisor before making the decision, you should be aware of all the implications before going ahead.
Role of a Tax Practitioner and Financial Advisor
Before making any withdrawal, consult with a registered Tax Practitioner and a Financial Advisor. These professionals can help you:
- Assess the tax and financial implications of withdrawing.
- Determine if other financial options are more viable.
- Plan strategically to minimize long-term impacts on your retirement savings.
Their guidance ensures you’re fully aware of the consequences and can make informed decisions.
Conclusion
The SARS Two-Pot Retirement Fund System introduces much-needed flexibility, but it also comes with responsibilities. Before making a withdrawal, consider the tax implications, the impact on your retirement goals, and whether alternative options are available. By consulting with a Tax Practitioner and Financial Advisor, you can make informed decisions that protect your financial future.
Remember, retirement savings are for your future. Use them wisely.
Resources and Research
- Sources: https://www.sars.gov.za/two-pot-retirement-system/
- Sources: https://www.momentum.co.za/momentum/business/two-pot-retirement-system
- Sources: https://sls-fresco.momentum.co.za/files/documents/corporate/two-pot/simplifying-the-2-pot-system-updated.pdf
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