This guide is for you if you’ve started earning and want to save for your own future, and perhaps for a family one day. A retirement annuity and a tax-free savings account both save you tax, but in different ways and at different times. This guide explains which one tends to suit first. You can also use both.
How each one saves you tax
An RA gives you tax relief now. For the 2026/27 tax year, you can deduct your contributions from your taxable income. The limit is 27.5% of your remuneration (your pay from work) or taxable income, whichever is greater, capped at R430,000 a year. Anything above that carries forward to later years. If your employer pays your RA from your salary, you get the saving through lower PAYE, the tax taken from your pay. Otherwise, it comes as a refund when you file your tax return. Inside the RA, growth isn’t taxed. You pay tax when the money comes out.
A TFSA gives you tax-free growth instead. You get no deduction for what you put in. But interest, dividends and capital gains inside the account are tax-free, and so are withdrawals. You can put in up to R46,000 a year from 1 March 2026, and R500,000 over your lifetime. Any allowance you don’t use in a tax year is lost.
Getting to your money
RA. Since September 2024, one-third of new contributions go into a savings pot and two-thirds into a retirement pot. You can take money from the savings pot once each tax year, at least R2,000 at a time. It’s taxed at your marginal rate (the rate on your next rand of income), and your fund may charge a fee. The rest stays locked until you retire, which for an RA can’t be before age 55. There are a few narrow exceptions, such as emigrating and staying away for three years.
TFSA. You can usually withdraw whenever you like, although some products ask for notice. But withdrawals don’t give you your allowance back. If you take out R20,000 and later put it back, that counts as R20,000 of new contributions.
The limits, and the 40% penalty
| RA | TFSA | |
|---|---|---|
| Yearly limit | Deduction of up to 27.5% of the greater of remuneration or taxable income, capped at R430,000 | R46,000 |
| Lifetime limit | No lifetime limit | R500,000 |
| If you go over | The extra carries forward to later years | 40% tax on the excess |
Going over the TFSA limits is expensive. If you put R50,000 into TFSAs in one tax year, SARS charges 40% on the R4,000 excess, which is R1,600. The limits apply to all your TFSAs added together.
What happens at retirement
RA. When you retire from an RA, what’s left in your savings pot can be taken as cash. In most cases, your retirement pot must be used to buy an annuity, which pays you a monthly pension. Cash lump sums at retirement are taxed on a separate table. For the 2026/27 tax year, the first R550,000 is tax-free, but earlier lump sums count towards it. Your pension income is then taxed like a salary.
TFSA. Nothing changes. The money stays yours to use or keep invested, and it stays tax-free.
What happens when you die
RA. Retirement fund money doesn’t form part of your estate, and your will doesn’t decide who gets it. The fund’s trustees do. They must consider everyone who depended on you financially, not only the people you named on your nomination form.
TFSA. A TFSA forms part of your estate and goes to your heirs under your will, after executor’s fees and any estate duty. Estate duty is 20% of the value of an estate above R3.5 million, after deductions, and 25% on any part above R30 million.
When each tends to suit
An RA tends to suit you if:
- your tax rate is higher, so the deduction is worth more
- you don’t have a retirement fund at work, or want to add to it
- you like knowing the money is locked away for retirement
- you expect to pay a lower tax rate in retirement than you do now
A TFSA tends to suit you if:
- you pay little or no tax, so a deduction wouldn’t help much
- you might need the money before retirement
- you’ve already used your RA deduction for the year
- you want flexibility later, with no need to buy an annuity
You can also use both: an RA for the tax relief, and a TFSA for flexible, tax-free savings. The RA or TFSA tool on this site shows the trade-off for your own income.
Two examples
Assumptions: taxable income of R300,000 a year, under 65, 2026/27 tax tables. You can save R2,000 a month, or R24,000 a year. We don’t show investment growth, because it’s uncertain.
- In an RA: your taxable income falls to R276,000. Your marginal rate is 26%, so your tax drops by R6,240 a year, or R520 a month. After tax, the R24,000 costs you R17,760.
- In a TFSA: there’s no tax saving now. The R24,000 uses just over half of your R46,000 yearly allowance, and part of your R500,000 lifetime limit.
Later, the RA money is taxed as it comes out, apart from the tax-free part of any lump sum. The TFSA money comes out tax-free.
Assumptions: taxable income of R800,000 a year, under 65, 2026/27 tax tables. You can save R46,000 a year, or R3,833 a month.
- In an RA: your taxable income falls to R754,000. Your marginal rate is 39%, so your tax drops by R17,940 a year. After tax, the R46,000 costs you R28,060. You could deduct up to R220,000 this year (27.5% of R800,000).
- In a TFSA: there’s no tax saving now. The R46,000 uses your full allowance for the year.
Each R1,000 you put into an RA saves R390 in tax here, compared with R260 at R300,000 a year. At this income, some people fill their TFSA allowance and also contribute to an RA.
This guide is general information to help you understand your options. It isn’t advice for your situation. Figures are for the 2026/27 tax year (1 March 2026 to 28 February 2027) and were checked on 28 September 2026.