How will my provident fund pay-out be taxed?

The tax treatment of your provident fund depends on which portion you're accessing and when you're accessing it. Under the current two-pot system (implemented in September 2024), different components of your fund have different tax implications.

Withdrawals before retirement

From your Savings Component You can make one withdrawal per tax year from your savings component, with a minimum amount of R2,000. These withdrawals are taxed at your marginal income tax rate—the same rate that applies to your salary. For 10X members, an administration fee of R300 + VAT applies to each withdrawal.

From your Vested Component If you need to access your pre-September 2024 funds before retirement, these withdrawals are taxed according to the retirement fund lump sum withdrawal tax table. This tax rate is typically less favourable than what you'd pay at retirement, and any previous withdrawals from retirement funds will affect your tax rate.

At retirement (age 55 or older)

Your Savings Component: When you reach retirement, you have flexibility with your savings component. You can either take it as cash, in which case it will be taxed at your marginal rate, or use it to purchase an annuity for regular income in retirement.

Your Retirement Component: The retirement component must be used to purchase an annuity. The regular income you receive from this annuity is taxed as normal income, with tax deducted monthly just like a salary.

Your Vested Component: For your pre-September 2024 funds, you can take up to one-third as a cash lump sum. This lump sum is taxed according to the retirement fund lump sum benefit table, which offers more favourable rates than early withdrawals. The remaining two-thirds must be used to purchase an annuity.

Understanding tax implications

Your total tax obligation will depend on several key factors:

• The timing of your withdrawal (before or at retirement)
• Which component you're accessing
• Your total taxable income
• Any previous withdrawals from retirement funds

For the most current tax tables and rates, visit the SARS website (www.sars.gov.za). Remember that tax-free amounts are cumulative over your lifetime across all retirement fund lump sums.

Making informed decisions

Every withdrawal has implications for both your tax position and your long-term savings. Before making any decisions, consider using our Two-Pot Calculator to understand how different withdrawal choices might affect your retirement savings.