Thomas Berry, Head of Sales at PSG Wealth

The tax year-end on 28 February is fast approaching, but there’s still time to take action and get the most out of your contributions if you have not already. Whether you’re looking to boost your retirement fund or grow your savings tax-free, Retirement annuities (RAs) and tax-free savings accounts (TFSAs) are two powerful tools for tax-efficient wealth creation.

Reduce tax and grow wealth with a retirement annuity

Every rand saved on tax is a rand that can be reinvested to grow your wealth. By contributing to an RA or TFSA, you not only reduce your tax burden but also unlock the potential for tax-free growth. Over time, this can make a significant difference to your financial position.

RAs are a tried-and-tested solution for retirement savings, offering immediate tax relief and tax-free investment growth. Contributions of up to 27.5% of your taxable income (capped at R350 000 annually) are tax-deductible. This effectively reduces your taxable income, which means you pay less tax now while growing your retirement nest egg.

For example, if your taxable income is R500 000 and you contribute the full 27.5% (R137 500), your taxable income drops to R362 500. Based on South Africa’s progressive tax rates, this could save you money in taxes. That’s money you can reinvest into your future instead of paying it to the taxman​.

In addition, RAs offer tax-free growth on returns. Whether through interest, dividends, or capital gains, your investment compounds over the years without being eroded by tax.

Don’t let this year’s tax-free savings limit go to waste

TFSAs are another exceptional tool for building wealth tax-efficiently. With an annual contribution limit of R36 000 and a lifetime cap of R500 000, it’s a flexible option for medium- to long-term goals. Unlike RAs, TFSAs allow you to access all of your funds at any time without penalties.

However, timing is critical. If you don’t use your full annual contribution before 28 February, that portion does not roll over to the next tax year. Missing this opportunity therefore means forfeiting a year of tax-free growth on your investment.

For example, by contributing the maximum annual limit of R36 000, you unlock the potential for all returns – interest, dividends, and capital gains – to be entirely tax-free. Over several years, this adds up significantly, particularly when compounded.

Making the most of these opportunities doesn’t have to be complicated. Whether it’s an RA, a TFSA, or a combination of both, a trusted financial adviser can help you determine how much to contribute and how to optimise your tax savings and grow your wealth.

ENDS