Is Your Savings Pot Secretly Pushing You into a Higher Tax Bracket?
Key takeaways
- Withdrawing from your Two-Pot Retirement System's savings pot can unexpectedly push you into a higher tax bracket.
- This can result in a larger tax bill than anticipated, silently eroding your savings.
- Use the Onemoola Two-Pot Retirement Calculator to understand the potential tax implications before making a withdrawal.
You’re probably diligently saving for retirement, maybe even planning to use the clever Two-Pot System. But there’s a sneaky little detail that might erode your hard-earned savings: taxes.
The Two-Pot System is a great idea. Split your retirement funds: one pot for long-term growth, untouched until those golden years; the other for genuine emergencies, like a surprise medical bill. Seems straightforward, right? Here’s the catch. When you tap into that short-term pot, it’s not just a simple withdrawal. The South African Revenue Service (SARS) sees it as income. And income gets taxed. Let’s look at a concrete example.
Imagine you earn a salary of R360,000 per year. Looking at the South African tax table below, you’ll see you fall into the 26% tax bracket.
South African Personal Income Tax Table (Updated)
| Taxable Income (Rand) | Tax Rate |
|---|---|
| 1 - 237,100 | 18% of taxable income |
| 237,101 - 370,500 | 42,678 + 26% of taxable income above 237,100 |
| 370,501 - 512,800 | 77,362 + 31% of taxable income above 370,500 |
| 512,801 - 673,000 | 121,475 + 36% of taxable income above 512,800 |
| 673,001 - 857,900 | 179,147 + 39% of taxable income above 673,000 |
| 857,901 - 1,817,000 | 251,258 + 41% of taxable income above 857,900 |
| 1,817,001 and above | 644,489 + 45% of taxable income above 1,817,000 |
Now, let’s say you need R30,000 for a home renovation project and decide to withdraw it from your Savings Pot. Your total taxable income for the year jumps to R390,000. Suddenly, you’ve crossed into the 31% tax bracket.
Without the withdrawal, your tax liability would have been around R57,397 (after rebates). However, with the R30,000 withdrawal, your tax liability increases to R66,172 (after rebates). That’s an extra R8,775 going to SARS, simply because you needed access to your savings.
The Takeaway: This isn’t meant to scare you off the Two-Pot System. It’s a powerful tool when used correctly. But it highlights a critical point: You need to understand the tax implications before you make a move.
Don’t let hidden taxes eat away at your future. Before withdrawing a single Rand, take a moment to understand the potential cost.
Here’s the good news: You can easily calculate the potential tax impact using the Onemoola Two-Pot Retirement Calculator. It’s a simple, yet powerful tool that will help you make informed decisions about your savings.
Take control of your financial future. Don’t let hidden taxes take you by surprise. Use the calculator, understand the implications, and build a secure future, one Rand at a time.