Question
An unmarried client (age 38) with no dependants resigned on 31 July 2020. As a member of his employers defined contribution pension fund, he carried
An unmarried client (age 38) with no dependants resigned on 31 July 2020. As a member of his employers defined contribution pension fund, he carried the risk of poor fund performance. Due to market volatility, his pension fund return disappointingly low. The client contributed R380 000 for the year to his retirement annuity. His taxable income before retirement contributions is R1 320 000 for the year. He has an emergency fund equal to four months income in a tax-free savings account. He does not have any outstanding liabilities.
1.1 The client would like to invest the pension fund money to be available at retirement, but also wants access prior to his actual retirement date, if necessary. Suggest a product and motivate why it is suitable. (3)
1.2 Calculate the clients maximum deductible contribution. (3)
1.3 Calculate the clients net taxable income. (2)
1.4 Explain to the client the implications of contributing R50.000 more than the amount calculated in question 1.2. (5) 1.5 What is the impact for the client, should he decide to invest the additional amount of R50 000 in his tax-free savings account?
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