Growth on disallowed benefits

Why keeping money in a retirement fund may still work.

- Nelis Brink

If I contribute R100 000 of disallowed contributions, does the investment growth on this amount within the retirement vehicle also get included in the amount I can use to offset future income tax? For example, if this amount grows to R200 000 by the time I retire, can I offset the full R200 000?

If it doesn't, then I am struggling to see why I would want to do this at all. I could just invest it in a discretionary investment with more flexibility than a retirement vehicle and end up in the same position, with the growth being taxable.

Dear reader,

This is a very relevant question, and I can see why you'd be weighing the benefits of investing disallowed contributions within a retirement vehicle versus using a discretionary investment.

Let's break down the specifics of disallowed contributions and how their growth is treated within a retirement vehicle.

1. Understanding disallowed contributions and Section 10C

Disallowed contributions refer to contributions to retirement funds (retirement annuities, pension funds, or provident funds) that were not tax-deductible when they were made. This usually happens when contributions exceed the annual limit of 27.5% of taxable income or R350 000 (whichever is lower).

Section 10C of the Income Tax Act allows you to recover these disallowed contributions tax-free when you withdraw from your retirement fund at retirement or through periodic annuity payments.