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Understanding Your Withdrawal Options After Resigning or Losing Your Job

In the realm of retirement savings, navigating the intricacies of withdrawals can be daunting, especially when faced with the prospect of resigning or losing your job. Fortunately, recent changes in legislation have shed light on what individuals can expect when accessing their retirement funds under such circumstances.

For starters, if you find yourself in the position of resigning or being let go from your job, you’ll still have the opportunity to withdraw any savings accumulated before September 1, 2024, from your employer-sponsored fund. Additionally, if you haven’t made any withdrawals in the tax year in which you lose your job, you’ll have the chance to access what’s in your savings pot.

However, it’s essential to note that while legislation may evolve in the future, currently, individuals who are retrenched and have depleted their savings pot can only access their vested savings.

The forthcoming implementation of the two-pot retirement system, effective September 1, 2024, will introduce changes in how retirement savings are accessed upon leaving employment. Here’s what you can expect under the new system:

Vested Pot (Savings Before September 1, 2024): You’ll have the option to withdraw cash from your vested pot, with the understanding that preserving as much as possible for retirement is advisable. Nevertheless, should the need arise, accessing this portion of your savings remains an option. It’s important to be aware that tax will apply in accordance with the current retirement fund withdrawal tax table, with only the initial R27 500 being tax-free.

Savings Pot: Withdrawals from your savings pot are also possible, provided you haven’t already made a withdrawal in the tax year. Exceptions exist for savings pots totaling less than R2 000, which can be withdrawn in cash even if a withdrawal has already been made during the tax year. Withdrawn amounts from this pot are added to taxable income and taxed at the marginal tax rate.

Retirement Pot: Unlike the other pots, cash withdrawals from your retirement pot aren’t permitted. However, you can choose to leave the funds in your existing fund or transfer them (tax-free) to another retirement fund, such as a preservation fund, retirement annuity, or the employer-sponsored fund of your new employer.

Regarding the preservation of two-thirds of your fund, contributions made from September 1, 2024, will be allocated to your retirement pot and must be preserved to purchase a pension or annuity upon retirement. Even if you leave your job, this money cannot be withdrawn.

Looking ahead, National Treasury has hinted at the possibility of granting access to a portion of retirement pot savings for those who are retrenched, subject to specific conditions. However, this proposal has not yet been formalized into legislation.

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