Estate Living Magazine Invest SA - Issue 41 May 2019 | Page 46

l i v e
s m a r t
THE TAX IMPLICATIONS OF CASHING IN YOUR
PROVIDENT
FUND
It’s not uncommon to change jobs every few years and at the
same time decide to cash out your provident fund. It seems like
a great way to access some quick cash, but is it really worth it?
Tax discussions can be so boring, but they are important. For
example, cashing in your provident fund seems like a great
way to get that much-needed money to pay off a debt, take a
quick holiday or even to invest. So why wouldn’t you? After all,
many people have trust issues when it comes to their employer’s
choice of fund administrator, and would much rather have more
control over their investments. This is understandable, but it’s
certainly best to chat to your financial advisor before jumping
ship. of taxable income exceeding R25,000.
• For amounts between R660,001 and R990,000 you will pay
R114,300 + 27% of taxable income exceeding R660,000.
• For withdrawals of more than R990,000 you will pay R203,400
+ 36% of taxable income exceeding R990,000.
Calculating the tax As another example, Melissa withdraws R1,250,000 and pays
R297,000, which is an effective rate of close to 24%.
It’s pretty simple to calculate the tax you’ll pay if you decide to
withdraw some or all of your money, using SARS’s Retirement
Lump Sum Benefit tax table, which currently looks like this:
• The first R25,000 is tax-free.
• For amounts between R25,001 and R660,000 you will pay 18%
Say, for example, Thabo withdraws R300,000 from his provident
fund. The tax due would be 18% of R275,000, which is R49,500
(effectively 16.5% of the total amount).
Clearly, the larger the withdrawal amount, the larger the
effective tax rate is and the more carefully you should consider
withdrawing the funds.