As the new year begins, it’s the perfect time to review your financial health and ensure you’re making the most of tax-efficient savings tools available in South Africa. Two key instruments to consider are Retirement Annuities (RAs) and Tax-Free Savings Accounts (TFSAs), which offer unique benefits for long-term financial planning and tax savings.

The power of tax-efficient savings

RAs and TFSAs are designed to help South Africans achieve financial security while enjoying significant tax advantages. But how can these tools work for you?

Retirement Annuities (RAs):

An RA is a personal retirement savings product that allows you to contribute up to 27.5% of your annual taxable income (capped at R350,000 per year) tax-free. This not only reduces your taxable income but also encourages disciplined saving for retirement.

Funds invested in an RA grow tax-free, meaning you won’t pay tax on interest, dividends, or capital gains. Upon retirement, one-third of your RA savings can be taken as a lump sum, with the first R550,000 of the withdrawal being tax-free. The remaining balance must be used to purchase an income-generating annuity, securing your financial future.

Tax-Free Savings Accounts (TFSAs):

Introduced in 2015, TFSAs have become a popular option for savers looking to maximise returns without the burden of taxes. South Africans can invest up to R36,000 per tax year (limited to a lifetime contribution of R500,000), with all returns, whether interest, dividends, or capital gains, completely tax-free.
TFSAs are ideal for medium- to long-term savings goals and offer unparalleled flexibility—you can access your funds at any time without penalties. However, exceeding contribution limits can attract punitive tax penalties, so careful planning is essential.

Why start now?

The earlier you begin contributing to these vehicles, the greater your opportunity to capitalise on compound growth. Starting early in the tax year also ensures you maximise your annual limits while securing your future financial stability.

Professional guidance is key

At Hereford Group, we specialise in creating tailored financial plans that align with your goals and leverage tools like RAs and TFSAs. Our expert advisors can help you navigate these options, ensuring your tax health is robust and your long-term savings thrive.

Contact us to start your journey toward financial wellness. We’re here to guide you every step of the way.