Tax and SARS knowledge base
How is the two-pot retirement savings withdrawal taxed?
How is the two-pot retirement savings withdrawal taxed?
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Direct answer
SARS says a two-pot savings-component withdrawal is taxed at your marginal income-tax rate, not under the retirement lump-sum tax tables. Your fund requests a SARS directive. SARS can also instruct the fund to deduct outstanding tax debt from the payment and set it off against what you owe.
The amount withheld under the directive may not be your final annual tax result. If SARS estimates a marginal rate from the information it has and your full annual income differs, a balance can arise on assessment.
What this means in practice
The two-pot system has applied from 1 September 2024. It allows qualifying members to access an amount from the savings component without cashing out the whole retirement fund. It does not mean the payment is tax-free or that retirement lump-sum tax tables apply.
Before you apply, make sure your tax profile is in order. SARS says a person must be registered for tax before a withdrawal request can proceed. It also tells taxpayers to ensure that there are no outstanding returns and no outstanding tax debt. Those issues can delay the directive or reduce the money paid.
The fund, not the member, normally sends the directive request. Obtain a written quote once the fund has processed it. It should show the savings withdrawal amount, directive-related tax, any SARS debt set-off and the expected net amount. Do not submit a random amount on an ITR12 based on the quote. Wait for the tax certificate and compare it to the prepopulated return.
The decision also has a retirement-planning side. A tax result is not the only cost of a withdrawal. Taking money from the savings component can reduce what remains invested for retirement. Get financial advice if the decision is material.
Step-by-step
- Check eligibility with the fund.
Ask the administrator for your savings-component balance, applicable fund rules, allowable withdrawal amount and any fund charges. Keep the member statement.
- Check your SARS compliance position.
Confirm that you are registered, file any outstanding returns and review the statement of account for debt. Do not assume a separate refund will be paid before a debt set-off.
- Submit the request through the fund.
Use the fund's approved process. The fund requests the SARS directive. Keep the submitted request and acknowledgement.
- Review the directive outcome and quote.
Check the gross withdrawal, tax withheld, SARS debt set-off, fees and net payment. Ask the fund how to challenge a factual error before accepting the payment.
- Preserve the tax documents.
Keep the directive reference, fund statement, tax certificate and payment confirmation. They support the later ITR12 reconciliation.
- Review the annual assessment.
Compare the prepopulated return and ITA34 with your certificate. A directive is not a substitute for the final assessment, especially where you have other income.
Documents and records to keep
- Fund member statement and savings-component quotation.
- Withdrawal request and fund correspondence.
- SARS directive reference and payment breakdown.
- Statement of account or debt-set-off correspondence.
- Tax certificate, ITR12 and ITA34.
Important limits and exceptions
This article concerns a savings-component withdrawal only. It does not cover a retirement benefit, withdrawal on resignation, divorce transfer, retirement-fund transfer or a tax-free investment withdrawal. Each has a different process.
Do not use retirement lump-sum tables to estimate a two-pot savings withdrawal. Do not promise that the directive will equal the final annual tax liability. Fund rules, SARS debt and your wider taxable income remain relevant.
When to get tailored advice
Get tailored tax and financial advice if you have multiple income sources, outstanding SARS debt, a non-resident question, a large withdrawal or a dispute about the directive. TaxProof can help organise the records before you request specialist advice.
Related TaxProof guides
- SARS offset of a refund against tax debt
- Do I pay tax when transferring retirement savings between funds? (B05-IND-009)