Author Topic: RA versus continued offshore investment / is the tax break really worth it?  (Read 1689 times)

jonb

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I am lucky enough to have gotten a kick into investing younger in life. Over the past 15 years, single stocks mostly in US tech have done really well for me but as I get older I tend to just build core positions in ETFs (global) with VOO / VT and QQQ being my anchor holdings

I am now back in SA after working in the EU for several years, I have been investigating the RA option with the main objective of SA tax optimization

My question:

I'm already gratefully in a position where I have a global stock/ETF portfolio. Should I rather take the disposable income and continue building that global portfolio with the view to retiring one day and drawing as optimally as possible off of that? this way is not restricted to "having to invest" in SA and can keep building in $

Or

Bite the bullet and open an RA with one of the low-cost options directly (Sygnia being the option for me) and use that disposable income to lower my effective tax payable annually

My somewhat simplistic view is that RA's being Reg 28 compliant places some limitations on holdings which might limit returns and at best you just beat out inflation, on retirement you get some payout Tax but the living annuity is still taxed as income so you kinda paying tax anyways which in my simple mind means that initial benefit is reversed to a certain extent, just later in life!

Appreciate your views!

Patrick

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I don't have an RA purely because I think that the tax savings now won't be enough to overcome the lower performance and potentially higher costs of the RA.

Then of course there's the problem that a) you will have to pay income tax on the withdrawals one day, and b) your money is locked until you're at least 55, and you end up with a fairly mediocre product.

A TFSA on the other hand is something I think every single South African should have and should max out all the time, but until they allow 100% offshore RAs I'll keep avoiding them.

I do suspect someone in the top tax bracket who expects to retire in a much lower tax bracket can get some decent value about the tax savings, but my maths said I wasn't one of those.

jonb

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Great to see you still on here Patrick and sharing very kindly great views which I've always appreciated!!

I'm terrible at math and certainly run for the hills when I have to do a tax return or crunch some numbers!

What I did weigh up though was something like let's say the lowest cost RA here in SA (sub 1% all-in) goes into a balanced fund which roughly over the past 5 years has given an annual review of around 8% and you get that tax benefit of up to 350K away a year and reduce taxable income by as much

As an example, if you just took the funds and bought VT for example or any world ETF you get around 7% annually over the past 5 years

The positives I guess is that it's your money and you can use it when and where you want/is in USD and that itself appreciated to ZAR (plus its 100% in companies in the strongest economies)

but even if you reduced your taxable income on the highest tax bracket by 100K annually that would be a significant saving. Taking in the ZAR performance over the past 5 years then maybe not so much

Just get so many damn mixed views out in the finance world!

Agree 1000% on the TFSA,  only wish that amount would increase but doubt it



I don't have an RA purely because I think that the tax savings now won't be enough to overcome the lower performance and potentially higher costs of the RA.

Then of course there's the problem that a) you will have to pay income tax on the withdrawals one day, and b) your money is locked until you're at least 55, and you end up with a fairly mediocre product.

A TFSA on the other hand is something I think every single South African should have and should max out all the time, but until they allow 100% offshore RAs I'll keep avoiding them.

I do suspect someone in the top tax bracket who expects to retire in a much lower tax bracket can get some decent value about the tax savings, but my maths said I wasn't one of those.