What would be a good investment for my excess contributions?

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[READER QUESTION] 'I have 10 years left before I retire & have reached the R350 000 annual tax limit in my retirement annuities (RAs). Should I continue investing in RAs or invest in an endowment?' Devon Card from crueinvest replies. Moneyweb Investing

I have 10 years left before I retire and have reached the R350 000 annual tax limit in my retirement annuities . Going forward, what would be a better investment for my excess contributions: continue investing in the RAs or investing in an endowment? Which one offers the better tax benefit?Thank you for your question.

It is important to note that regardless of how much is over-contributed, the cash commutation will still be limited to one-third, so liquidity must be a consideration when making these over-contributions. First and foremost, I am going to start off by taking a detour from the above questions by briefly contrasting a retirement annuity and an endowment policy. These two investment policies offer tax benefits in a unique way; however, they differ distinctively in tax treatment.

Retirement annuities are a tax-saving vehicle where your taxable income is reduced up to a set limit, as spelt out in the Income Tax Act. Within a given year, contributions are tax deductible up to a maximum of 27.5% of taxable income or remuneration from your employer, with a R350 000 annual ceiling.

 

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