As the tax year draws to a close, it’s now time to take stock and review whether you’ve taken full advantage of the available tax benefits. The tax year ends on 28 February, and there is still time to make a lump-sum top-up to your retirement annuity and/or tax-free savings account.
Retirement Annuities
In South Africa, retirement funds remain one of the most effective ways to save for the future in a tax-efficient manner. They offer three important tax advantages:
- Contributions are tax-deductible (within legislated limits)
- Investment growth is tax-free
- A portion of the retirement benefit may be taken tax-free at retirement (subject to limits and rules)
These incentives are designed to encourage long-term saving and to help individuals build financial security beyond their working years.
By contributing to a retirement annuity, you reduce your taxable income, which in turn reduces the amount of tax you pay. Contributions of up to 27.5% of taxable income, capped at R350,000 per year, may currently be deducted. In simple terms, part of what you contribute is effectively supported by the tax saving achieved — particularly for those in higher tax brackets.
Tax-Free Savings Accounts
Tax-Free Savings Accounts are a valuable complement to retirement saving. Any interest, dividends, or capital gains earned within these accounts are completely tax-free, allowing your investment to compound without erosion from tax over time.
The annual contribution limit is R36,000, with a lifetime limit of R500,000. Because unused allowance cannot be carried forward, these accounts tend to reward consistency and a longer-term mindset.
Which should you prioritise?
As a general guideline, it usually makes sense to ensure that retirement saving is on track before directing additional funds to a tax-free savings account. Over time, the compounded benefit of the tax deduction on retirement contributions often outweighs the tax advantages of a tax-free savings account — particularly earlier in one’s career.
That said, there is no single right answer. The most appropriate approach will always depend on your income, cash flow, and what you are working towards.
If you would like us to:
- Check how much contribution room you still have
- Help you decide whether a top-up makes sense this year
- Or assist with implementing a contribution before tax year-end
The deadline for top-up contributions is 10 am on Friday the 20th of February.