Learn about the tax benefits of saving for retirement

There are several useful financial schemes and instruments for planning our future that are tax deductible.

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14, 2021

5 min read

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

Opinions expressed by Entrepreneur contributors are their own.

The possibility of retiring and having a dignified retirement is a complex task for Mexican workers. According to the Mercer and CFA Institute 2020 World Pension Index , Mexico’s pension system is ranked 35 out of 39 globally and among the bottom in Latin America. This index qualifies and compares more than 50 indicators, among which are the benefits and design of the pension system, pension coverage, government incentives, among others; In other words, these data show the deficiencies of the current pension system in the country and the need to include other retirement savings plans .

According to figures from the personalized financial coach Coru , 71% of Mexicans do not have a personal retirement plan in action . In the same sense, 57% have not tried to find out how much money they need to save for their retirement and 70% are concerned about the possibility of running out of money for their retirement. Given this reality, it is important to consider alternatives to better prepare for the future.

The National Survey on the Situation of People of Retirement Age , carried out by the Mexican Association of Afores (Amafore), reveals that only 37% of people in this range saved or invested on their own initiative. This type of internship should be a priority for workers from the beginning of their working life. In addition, the law provides tax benefits for those who make voluntary contributions to their Afore accounts or personal retirement plans.

“There are several useful financial schemes and instruments to plan our future, in some cases these operations may be tax deductible. Voluntary savings in your Afore can increase the amount of your pension when you retire, as well as having tax benefits ”, points out Iván Hernández, cofounder & Head of Product at Coru.

57% of people have not tried to find out how much money they need to save for their retirement / Image: Depositphotos.com

Tax benefits in voluntary savings and other schemes

The Income Tax Law (LISR) establishes that people can deduct in their annual return the resources they deposit in the supplementary savings subaccount for retirement, their voluntary contributions to the Afore or retirement pension plans.

In the legislation, personal retirement plans are considered those accounts or investment channels that are established with the purpose of receiving and managing resources destined exclusively for the holder to use them when he turns 65 or in cases of disability or inability to carry out a paid job.

These retirement plans -such as retirement insurance, personal retirement plan, among other instruments- have to be administered by insurance and credit institutions, brokerage houses, retirement fund managers (Afore) or operating companies of Investment funds with authorization to operate in Mexico and must have authorization from the Tax Administration Service (SAT).

To deduct taxes on voluntary contributions, it is necessary that the resources remain in the Afore account until reaching 65 years of age. There are some exceptions in which the money can be made available, such as in the case of disability or inability to work.

In accordance with Article 151 of the LISR , the amount of the deduction will be up to 10% of the taxpayer’s income in the year, without said contributions exceeding the equivalent of five minimum wages per year. The deductible limit changes from year to year due to variations in the minimum wage.

Voluntary savings in the Afore is the additional amount that a person allocates to their individual account to increase the amount of their pension or for a future investment. These contributions can generate, in the long term, high returns and can be made through electronic direct debit, deposit in establishments, deposit in Afore branch, discounts via payroll or through the App Transfer and Aforemóvil applications .

The future is uncertain for many of the economically active people. The experts predict that the funds in the Afores, especially those who started trading after 1997, will not be enough for a dignified retirement.

To aspire to have a dignified retirement and an old age without financial worries, it is important to start saving now, in addition to exploring financial products that can make our money grow.

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