Two Tax Moves Every South African Should Make Before the End of February

As the end of February approaches, many South Africans are focused on school plans or simply getting through the first part of the year. But there is one important deadline you shouldn’t overlook, the end of the tax year.

Before the tax year closes, you still have an opportunity to make smart investment decisions that can reduce your tax bill and put you on a stronger financial footing for the future. Two options stand out for their simplicity and effectiveness: Tax-Free Savings Accounts (TFSAs) and Retirement Annuities (RAs).

Why a Tax-Free Savings Account is a must-have

If there is one investment every South African should consider, it’s a Tax-Free Savings Account. You don’t need a large income to get started; many providers allow contributions from as little as R250 per month.

You can invest up to R36,000 per tax year and staying within this limit is important to avoid penalties. What many people don’t realise is that timing matters. If you contribute R36,000 before the end of February, you can contribute another R36,000 as soon as the new tax year starts in March. That means R72,000 invested for tax-free growth in a very short space of time.

What does ‘Tax-Free’ really mean?

Tax-free growth means that all the returns on your investment stay with you. In a Tax-Free Savings Account, you don’t pay:

• Capital Gains Tax when your investment grows
• Dividend tax on dividends declared on shares
• Tax on Interest on cash or bonds

Over time, avoiding these taxes can make a significant difference to how much your investment is worth.

Flexibility when life happens

Another big advantage of a Tax-Free Savings Account is access. Unlike retirement products, your money isn’t locked away. You can withdraw funds if you need them, but it’s important to know that any amount you withdraw cannot be replaced later.

This flexibility makes TFSAs useful not only for long-term goals but also as a backup for unexpected expenses. Although it is accessible in an emergency if you don’t have other emergency funds, the true power of tax-free compounding becomes clear over longer periods. They also play an important role in retirement planning, as withdrawals that you take in retirement to supplement your income won’t increase your taxable income.

Retirement annuities: Reducing your tax bill today

While Tax-Free Savings Accounts offer flexibility, Retirement Annuities come with a powerful tax benefit. Contributions to an RA can reduce your taxable income, meaning you pay less tax now.

You can contribute up to 27.5% of your taxable income, capped at R350,000 per year, thereby reducing your taxable income by the amount you contributed. If you already contribute to a pension or provident fund through your employer, those contributions count towards this limit.

A simple example

Let’s say you earn R250,000 a year and contribute R1,800 per month (R21,600 annually) to a Retirement Annuity.

By doing this, your taxable income is reduced by R21 600, resulting in a tax saving of around R4,920 for the year. In practical terms, you are investing towards your retirement while SARS effectively covers part of the cost through lower tax. On top of that, your investment grows without being taxed on interest, dividends, or capital gains.

What’s the catch?

The main trade-off with a Retirement Annuity is access. Your money is preserved until retirement and investments must comply with Regulation 28, which limits exposure to certain asset classes, including offshore investments. While this reduces flexibility, it is designed to protect investors through diversification.

So, which one should you choose?

Ideally, both, if your budget allows.

• Choose a Retirement Annuity if you want to reduce your tax bill now and are investing for the long term.
• Choose a Tax-Free Savings Account if flexibility and tax-free growth are your priorities.

If you’re starting or working with a tight budget, a Tax-Free Savings Account is often the easiest first step. As your income grows, adding a Retirement Annuity can significantly improve your overall tax efficiency.

Act before February ends

The tax year ends in just weeks. Whether you are topping up your Tax-Free Savings Account or making a final Retirement Annuity contribution, acting before the deadline can have lasting benefits.

A small decision today can make a meaningful difference to your future financial well-being.