Tax-free savings account or retirement annuity? (2026/27)
Figures for the 2026/27 tax year. Prime rate checked 2 October 2026; tax tables and fees checked 30 September 2026. By AfroTech.
Both are tax-efficient ways to save, but they work in opposite directions. A retirement annuity (RA) gives you tax back now and taxes you later. A tax-free savings account (TFSA) gives nothing now and never taxes you.
The key differences
| Retirement annuity | Tax-free savings account | |
|---|---|---|
| Tax benefit now | Deductible: up to 27,5% of income, max R 430 000 a year | None |
| Tax on growth | None while invested | None, ever |
| Tax when you take it out | Lump sum and pension income are taxed | None |
| Contribution limits | R 430 000 a year deductible | R 46 000 a year, R 500 000 lifetime |
| Access | Locked until 55, except the two-pot savings component | Any time (but withdrawals use up your limits) |
What the RA's tax break is worth
The RA deduction is worth your top tax rate. Here's what R 2 000 a month in an RA saves you in tax at different salaries:
| Monthly salary | Tax saved per month | Real cost of R2 000 |
|---|---|---|
| R 20 000 | R 360 | R 1 640 |
| R 30 000 | R 520 | R 1 480 |
| R 40 000 | R 620 | R 1 380 |
| R 60 000 | R 780 | R 1 220 |
| R 100 000 | R 820 | R 1 180 |
Under 65, no other retirement contributions, 2026/27 SARS tables.
Which one first?
- The RA usually wins on tax if you're in the 31% bracket or higher now and expect a lower rate in retirement.
- The TFSA wins on flexibility: you can use it for big goals, an emergency, or retirement, and nothing it pays out is ever taxed.
- If you earn below the tax threshold (R 99 000 a year under 65), an RA saves you no tax, so a TFSA is the better tax-free option.
Many people do both: enough in an RA to use the deduction they value, then up to R 46 000 a year in a TFSA.
Watch the TFSA rules
Contributions above R 46 000 in a tax year, or R 500 000 in total, are taxed at 40%. Unused room doesn't carry forward, and money you withdraw can't be replaced without counting as a new contribution.
Try it with your own numbers. The ZARWise calculator uses the same figures as this page.
See how a tax-free account could grow