The benefits of Retirement Annuities and Tax-Free Investment Plans

Feel free to reach out to PSG Wealth Adviser  Lourens van Wyk directly.

Retirement Annuities: Save today, pay less tax

A retirement annuity is designed specifically for long-term retirement savings and comes with substantial tax advantages.

Contributions to an RA are tax deductible up to 27.5% of your taxable income (or remuneration), capped at R350 000 per year. This means SARS effectively helps you save for retirement.

Practical example:

If you earn R600 000 a year and contribute R100 000 to a retirement annuity, your taxable income may reduce to R500 000. Depending on your tax bracket, this could save you tens of thousands of rands in tax for the year – money that stays invested for your future instead of going to SARS.

Inside an RA, your investments also grow tax free – there is no tax on interest, dividends or capital gains while the money remains invested. Over time, this tax-free growth can make a meaningful difference to your retirement outcome.

Another key benefit is discipline. Because RAs are generally only accessible from age 55 (except for the savings component in case of emergency), they protect your retirement savings from being used too early.

Tax-Free Investment Plans: Flexible and powerful

Tax-free investment plans offer a different but equally valuable benefit. While contributions are not tax deductible, all growth and withdrawals are completely tax free – for life.

You may contribute up to R36 000 per year, with a lifetime limit of R500 000. Any contributions made in excess of these limits will be taxed at 40%.

Practical example:
If you invest R36 000 a year into a tax-free investment and it grows at 10% a year, the future value after 20 years could be well over R1.3 million – and every cent can be withdrawn tax free.

Tax-free Savings Accounts are highly flexible. You can access the funds at any time, making TFSAs ideal for:

• supplementing retirement income
• long-term goals
• funding future expenses without triggering tax.

However, because lifetime limits apply, withdrawals should be carefully considered – once you withdraw, you cannot ‘replace’ that contribution allowance.

Why timing matters: Act before the tax year ends

South Africa’s tax year ends on 28/29 February each year. Contributions made before this date count towards the current tax year and can immediately improve your tax position:

• RA contributions made before tax year-end may reduce your next tax bill or increase your refund.
• Unused TFSA annual allowances are lost forever – if you don’t use the R36 000 this year, you cannot carry it forward.

Waiting until later often means missed opportunities that can never be recovered.

Using them together

RAs and TFSAs work best when used together:

• RAs provide upfront tax relief and long-term retirement security.
• TFSAs provide tax-free flexibility and future income without tax consequences.

By making regular contributions – and topping them up before tax year-end – you give yourself the best chance of building wealth efficiently and sustainably.

In summary, start early, contribute consistently, and don’t wait until the last minute. The decisions you make before the end of this tax year can have a lasting impact on your financial future.