Tax and SARS knowledge base
How is a retirement-fund withdrawal taxed before retirement?
How is a retirement-fund withdrawal taxed before retirement?
Last reviewed:
Direct answer
A pre-retirement payment can be a retirement-fund withdrawal benefit, but there is no single tax answer for every payment before retirement. The result depends on the event, the fund rules, the component from which money is paid and the SARS tax directive requested by the fund administrator.
Resignation, retrenchment, transfer, retirement and a two-pot savings-component withdrawal should not be treated as interchangeable. Ask the administrator for the exact benefit classification before you make a decision.
What this means in practice
Since the two-pot retirement system, fund interests can include vested, savings and retirement components. SARS guidance says the savings component is accessible under its own rules, while the retirement component generally cannot simply be paid in cash before retirement when employment ends. A member's description such as “I am cashing out my pension” is therefore not enough for tax planning.
The fund administrator normally applies to SARS for the relevant directive. The directive helps determine what is withheld from the benefit. It does not make the event tax-free, and it should not be confused with the final annual assessment. Other income, outstanding returns and debt can affect the eventual position.
Before accepting a payment, request a written benefit quote. It should show the reason used for the payment, the gross amount, components, tax directive reference, deductions and net payment. If the quote is for a transfer, do not assume it has the same outcome as cash withdrawal. A correctly processed approved transfer has its own directive and Recognition of Transfer process.
Step-by-step
- Identify the triggering event.
Record whether you resigned, were retrenched, reached retirement, changed funds or applied for a savings-component withdrawal. Keep the termination or fund-transfer documents.
- Ask for a component statement.
Request the balance and proposed treatment of vested, savings and retirement components. Do not rely only on a general member-app estimate.
- Obtain the written benefit quote.
Check the gross benefit, payment reason, SARS directive reference, deductions and net payment. Ask the administrator to explain a category you do not understand.
- Consider transfer options.
Where a transfer is available, get information about the receiving fund and the transfer process. Do not classify an approved transfer as a cash withdrawal.
- Keep the final certificate.
Retain the tax certificate, directive and benefit statement. Compare them with the ITR12 when it is prepopulated.
- Review the annual result.
A pre-retirement benefit can interact with other taxable income. Keep the ITA34 assessment and seek advice if it differs from what you expected from the directive.
Documents and records to keep
- Fund rules, benefit quotation and component statement.
- Termination, resignation or transfer documents.
- SARS directive reference and tax certificate.
- Fund correspondence and payment confirmation.
- ITR12 and ITA34 assessment.
Important limits and exceptions
This article does not provide lump-sum tables or calculate a particular benefit. Tables, tax years and fund rules can change. A two-pot savings withdrawal has a separate marginal-rate treatment and should not be analysed as an ordinary retirement-fund withdrawal.
Tax and fund access are only one part of the decision. Taking retirement savings early can have material long-term consequences. Seek regulated financial and tax advice where the amount is important.
When to get tailored advice
Get tailored advice before accepting cash after a resignation, retrenchment or fund move, especially if the quote includes multiple components or a proposed transfer. TaxProof can organise the directive and certificate records for review.
Related TaxProof guides
- Two-pot retirement savings withdrawal tax
- How is the two-pot retirement savings withdrawal taxed? (B05-IND-008)