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How does tax work in a preservation fund?

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While you are invested in a pension or provident fund, you won't pay any tax on those investments. Your funds remain tax free when you move either fund over to a preservation fund.

There are only tax implications that come into effect when you choose to retire from a fund or withdraw from it. Before the age of 55, you can make one withdrawal from your preservation fund. It can be a partial or full withdrawal. You will be taxed on this withdrawal according to a sliding tax table.

After age 55, the tax on your withdrawals will depend on the kind of fund you were initially invested in, as each have different allowances. If you transferred your pension fund into a preservation fund, you are able to access one third of the investment should you wish. If you transferred your provident fund into a preservation fund, you may be able to access 100% of the fund which was invested prior to March 2021 when legislation changed. You are only able to access one third of the investment which took place after March 2021. You can read more about this change here.

On these withdrawals you get R500,000 tax free once off and then the balance is taxed based on a sliding scale. The more you withdraw the higher rate of tax you will pay. You can view the tax treatment of retirement funds from SARS here and use this calculator from TaxTim here.

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