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Malamute

Taking Out Your Ra - New Rules From 01 March 2016, Or So It Seems

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For some years now, it has been possible to cash out your RA before age 55. This required financial emigration through the Reserve Bank, opening of a blocked RAND account at a bank in SA etc.

 

I noticed on my latest RA statement the following information (verbatim) from Old Mutual, which seems to indicate that this will be easier in the future. I'm not sure what this means - and it seems unclear - e.g. will you still need to financially emigrate - or will it now be sufficient to no longer be resident in South Africa:

 

Change that will affect ex-patriate members of retirement annuity funds

· The Act indicates that with effect from 1 March 2016, members who cease to be resident in South Africa, as well as members who return to their country of residence on the expiry of a visa obtained for work or visiting purposes in South Africa, will be able to access their benefits prior to the age of 55. Such benefits will be taxed as a withdrawal benefit.

· Previously, members of retirement annuity funds could only claim an exit benefit before retirement from the fund when they emigrated from South Africa

 

Please note: The Fund is in the process of applying to the Registrar for a rule amendment to make provision for such transfers as this has previously not been catered for.

 

It would appear that Old Mutual are not yet changing anything - but waiting for a rule amendment.

 

So, just FYI that things may be changing.....or not.

Edited by Malamute

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Certainly sounds like you will just need to show you are "non resident" anymore. Would make life a bit easier probably though in practical terms there would still be paperwork - they'd still want some proof of non-resident status and you'd need to pay tax on withdrawal. You may not need SARB clearance anymore though like you do with emigration and that would take some paperwork out, though SARB were pretty quick for our emigration forms - SARS was where our hold up was. Still any reduction in paperwork would be welcome I'm sure!

 

If you have any other accounts I'd look into the implications - for example if you declare yourself non-resident to take your RA out they can still insist you'd need to change your bank accounts to non-resident ones too (that's not just for emigrants but any non-resident).

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Some info here -

 

"Non-residents: how to claim your South African RA fund

....

Until 31 December 2015, to access your money as a cash lump sum after leaving SA, you had to go through the formal financial emigration process with SARB/SARS. This is no longer necessary. Since January 2016, you can access your cash early, and as a cash lump sum, provided you are no longer resident in SA. This is in terms of the Tax Law Amendment Act, 2015.

 

Note that once you reach your RAs normal retirement age (defined either by the policy maturity date by the normal retirement age set in the fund rules) then you no longer have the option to withdraw the full amount as a cash lump sum, even as a non-resident you must annuitise at least two-thirds (subject to the R247,500 annuitisation threshold)...."

 

Note this bit is also pertinent- not just what I thought about a non-res account but also potential SARS issues:

 

"The downside of being classified a non-resident is that you can no longer transact through your old SA bank account. Instead, you have to open a non-resident (aka blocked rand) account. Your fund administrator will have to pay the proceeds into that account. From there you can take this money offshore. The main South African banks will all be able to help you with this.

 

But what if you left quietly, without saying goodbye to SARS? One issue (your issue) is that the administrator cannot pay out your RA without first obtaining a tax directive from SARS (the South African Revenue Service). So if you took French leave some years ago, SARS may no longer know who you are. This means you must first establish your identity with SARS, possibly by reviving you old tax or identity number. You may then have to resolve any outstanding matters on your file."

 

More detail: https://www.10x.co.za/blog/non-residents-how-to-claim-your-south-african-ra-fund/

Edited by SJ27

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In light of recent laws (either changes coming into effect, or being scrapped by Mar 2018) –

having financially emigrated, has anyone

  • taken a lump sum early, and was there a penalty?
  • let it mature, and be forced to annuitise two-thirds? (I believe you have to purchase another form of income? Could someone clarify what this means)

Thanks

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I am in the process of getting my Sanlam RA cashed.  Can be done, need docs from SARS and SARB.  Your SA bank needs to be blocked as well.  Will see how this plays out.  There is the early cash out penalty as well as tax from SARS.  Hope I can get it done and just be done with everything.

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Makes me mad how so many people got screwed over by the RA industry in SA. I’m thankful we just had provident funds so had tax implications but no penalties for early cashout.

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I took out a Retirement Annuity in 1980, paid the premiums for quite a few years and then maid the policy paid up. I received a letter from Momentum that the policy has matured. It actually matured 10 years ago but they continued to invest it but, they cannot go beyond the 10 year period which will be in January 2010.

The cash value is around ZAR 160,000.00 I don't really need the money now and would like to reinvest it for another 20 years. What are my options here? I am a dual citizen. What sort of paperwork is required by the IRS?    For SARS I have to get a tax clearance certificate.

My plan was to invest the lump sum with Allan Grey in  SA until I really need the money- obviously, pay the IRS  their slice of the investment and SARS their share. Does anyone have any experience with maturing Retirement annuities and what the tax and paperwork requirements are? 

Edited by oscar

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Hi Oscar, I'm not an expert, but had similar situation (investment in a RA that I continued paying etc after I moved to the USA).

For the USA:
1.  IRS - if the value exceeds $100k (if you are married, filing jointly) or $50k (married filing separate/single), then you need to submit a form 8938 with your tax return each year.  It sounds like this will not be the case with you.
2.  FINCEN - Financial Crimes Enforcement Network (i.e. anti money-laundering) requires you to file an FBAR each and every year you have control of assets outside of the USA which exceed $10k.  Sounds like this will be the case with you.

For SA:
1.  This is going to depend on whether it is just money invested, or whether you are drawing it as an income.  If the rules of the policy state that they MUST now convert it to an RA - this usually means that you can cash out 1/3 in a lump sum - with up to R500k being tax free, (although on $160k, the tax free lumb sum will only be a bit north of R53k) while the rest must be now used to purchase an annuity, which gives you a monthly income for life.  You cannot now, or in the future, cash that out, once you have purchased the annuity - it remains in place for life, whether or not you have financially emigrated, or what citizenship you hold.   The 1/3 can be cashed out only into a South African resident bank account (and you will have to access it from there including abiding with reserve bank rulings).  Likewise, the annuity can only be paid out - this will be monthly income - into a South African resident bank account.  If you don't have one of those (and you would have to FICA to get one), you may have to do it as a non-resident.
2.  For a non-resident bank account, you will first have to do financial emigration which is handled by a bank in SA.  For this, I had to get a letter from the IRS stating that as far as they know, I am resident in the USA for tax purposes.  Once you have financially emigrated, you can either keep the non resident bank account open, and have the funds paid into that (and use it on return trips to SA, for example, or have it sent to you in the USA - which involves bank fees each time).  
3.  The money remains SA source income, and is subject to SARS tax, but you would still have to declare this annuity income on your IRS tax return each year, AND claim the foreign income tax credit (due to tax treaty with SA).

To be honest, in the long term, it will be such a pain to keep going with the investment (which is not that big) - with all the filings you will have to do each year, that you may want to bite the tax bullet now - and cash it out, and bring the funds over to the USA.  I did this earlier this year - financial emigration, paid the tax in SA, brought the funds over to the USA etc.  I will have to file one more SARS return, and one more FBAR next year, as this year I did still have control of $10k+ in a foreign country (SA), but after that, the extra paperwork is done.  

A final note:  I actually did the calculation:  Had I cashed my funds out in 2007, when I left SA, I would actually have got MORE $ for it, than I did cashing it out in 2019, despite the fact that there had been good growth in the interim (in ZAR), AND I had been still paying a premium into one policy for these 12 years)!  So, for me, keeping an investment in SA while doing lots of extra paperwork, was not worth it.

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Thanks, Malamute for the pearls of wisdom. I agree with your suggestion of cashing it out one time. I will leave it for my 2020 tax year. To arrange for a financial emigration with the bank how long does that process take?(I still have FICA clearance and Credit Card at Nedbank)

with a Retirement Annuity can I cash the whole amount out. 

Again thanks for the advice. I really appreciate it.  

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Hi Oscar

I was also with Nedbank, and they are pretty sticky about the whole FICA thing etc.  I started this late last year, and it took about  5 months in total. 
Yes, you can cash it all out - but only by doing financial emigration.  


I ended up using a company called Rand Rescue - and paid their fees, because I didn't want to try and deal with it all myself - it is quite a process! I can recommend them - the process was fairly painless, when you take into consideration dealing with SA banks, SA Reserve Bank, SARS and Old Mutual. Also, a friend was doing the same thing at the same time, and had to complete some SARS tax returns for some arbitrary years....that is quite common, it seems, but I didn't have to.  I also still had an active SARS tax number.  If you don't have one, they will re-register you with SARS.  (you can deregister again after the whole process is complete and you have done the final return).

Basically, they opened a Mercantile Bank account for me (blocked account), and Mercantile did my financial emigration - a ton of paperwork with the reserve bank.  I had to obtain a certificate of residence from the IRS this side as part of that process (that proved not too hard to get, but in itself took about a month).

Mercantile was then able to submit paperwork to Old Mutual to cash out my policies with them (RA's) - as they could only be cashed out due to emigration - this is because of the laws related to the Pension Funds Act - or some such - in SA.  Your bank in SA has to do this and give the instruction to the company holding the policy - it isn't something you can do.   They also had to get tax directives from SARS before the money could be cashed out, which stipulated how much tax was to be paid - this was deducted by Old Mutual and then the nett amount was paid into the Mercantile account.  At that point, they were able to transfer the money to me in the USA.  

As for the SARS tax - the first R25 000 you cashout is tax free, and then the rate is 18% on the amount up to R660 000 - at least that is the current tax table.

 

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Thanks, Malamute I will start the process rolling in the next few days and probably also go through Rand Rescue. I have family in Cape Town, but this sounds like going through quite a few hoops and balances.

Thank you, so much for explaining the whole process!

 

 

 

 

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Thanks Malamute for that explanation of how to financially emigrate after the physical emigration has taken place! I’m sure it will be useful for many readers. 

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