TFSA vs Retirement Annuity: how they differ
The tax-free savings account (TFSA) and the retirement annuity (RA) are South Africa's two most popular tax-friendly ways to invest. They work very differently. Here's how — so you can understand the trade-offs and discuss them with an adviser.
In one table
| TFSA | Retirement Annuity | |
|---|---|---|
| Tax on contributions | No deduction | Deductible up to 27.5% of income, max R350,000/yr |
| Tax on growth | Tax-free | Tax-free inside the fund |
| Tax on withdrawal | Tax-free | Income from it is taxed; lump-sum portion per SARS retirement tables |
| Access | Anytime (flexible) | Generally locked until age 55 |
| Contribution limit | R36,000/yr · R500,000 lifetime | 27.5% / R350,000 deductible cap |
| Investment rules | No Regulation 28 limit | Regulation 28 applies (caps equity & offshore) |
The TFSA
You contribute after-tax money (no deduction), but all growth — interest, dividends, and capital gains — is tax-free, and you can withdraw at any time tax-free. Limits are R36,000 a year and R500,000 over your lifetime; contributing more triggers a 40% penalty on the excess. Withdrawing doesn't restore room, so the lifetime limit is best protected by leaving it to grow.
The retirement annuity
Contributions are tax-deductible (up to 27.5% of the greater of your taxable income or remuneration, capped at R350,000 a year), and growth is tax-free inside the fund. In exchange, the money is locked until at least age 55, the fund must follow Regulation 28 (which limits equity and offshore exposure), and at retirement up to one-third can be taken as a lump sum (taxed per the SARS retirement tables) while the rest provides a taxable income.
The trade-off in a sentence
A TFSA gives you flexibility and tax-free withdrawals later; an RA gives you a tax deduction now and enforced retirement discipline. Many South Africans use both, in different proportions, depending on their goals, time horizon, and tax position.