In short: If you pay income tax and will not need the money before retirement, a retirement annuity (RA) usually gives your next R1,000 the biggest boost, because SARS gives you back tax at your marginal rate. If you want access to the money, or you pay little or no tax, a tax-free savings account (TFSA) is often the better home. For the 2026/27 tax year you can put up to R46,000 into TFSAs (R500,000 over your lifetime), and you can deduct RA contributions up to 27.5% of your income, capped at R430,000 a year. Many people use both. This is general information, not financial advice.
How the tax works on R1,000
Retirement annuity
RA contributions are tax deductible. If your income is taxed at 26% at the top, a R1,000 contribution cuts your tax by about R260, so it really costs you R740. At 31% it costs R690, and at 36% it costs R640. Growth inside the RA is tax free. When you retire, you pay tax on lump sums and on the annuity income, but often at a lower rate than while you were working.
For 2026/27, the 26% rate applies to taxable income from R245,101 to R383,100, and 31% from R383,101 to R530,200. Check the 2026/27 tax tables for your band.
Tax-free savings account
You put in money you have already paid tax on, so R1,000 costs you R1,000. After that, all interest, dividends and growth are tax free, and withdrawals are tax free too. There is no tax refund up front.
The limits for 2026/27
| Retirement annuity | Tax-free savings | |
|---|---|---|
| Annual limit | Deduction up to 27.5% of the greater of remuneration or taxable income, capped at R430,000 | R46,000 across all your TFSAs |
| Lifetime limit | None (excess contributions carry forward) | R500,000 |
| Penalty | None for contributing too much | 40% tax on contributions above the limits |
| Tax on the way in | Deductible | Not deductible |
| Tax on growth | None | None |
| Access | Mostly locked until age 55 | Any time |
A withdrawal from a TFSA does not give you your limit back. If you take out R10,000, it still counts towards your R46,000 for the year and your R500,000 lifetime limit.
Access: the big difference
Most of an RA is locked until you retire from the fund, from age 55. Under the two-pot system, part of new contributions goes into a savings component that you can withdraw from once per tax year, but that withdrawal is taxed at your marginal rate. See our two-pot guide.
A TFSA can be withdrawn at any time (some fixed-term TFSA products have notice periods). That makes it more flexible, but also easier to raid.
Which one for your next R1,000?
- Choose the RA first if you pay tax at 26% or more, you have an emergency fund, and you will not touch the money before retirement. Put the tax refund into your TFSA for a double win.
- Choose the TFSA first if you earn below the tax threshold (R99,000 a year for under-65s in 2026/27), you need flexibility, or you already contribute a lot to a pension fund at work.
- Use both if you can. Many people top up an RA enough to use their deduction, then add to a TFSA.
- Build an emergency fund first if you have none. Neither product is ideal for money you might need next month.
Costs and investments
Fees eat returns in both. Compare total investment charges, platform fees and any advice fees. RAs must follow Regulation 28 limits on how much can go into shares and offshore. TFSAs can hold anything from cash to equity ETFs, depending on the provider. See tax-free investment account options and RA tax savings.
What to confirm before you invest
- Your marginal tax rate for 2026/27.
- How much you already contribute to a pension or provident fund through work, as this uses up the same 27.5% limit.
- How much you have put into TFSAs this tax year and in total since 2015.
- The provider’s fees and any minimum monthly contribution.
Last checked: 16 October 2026. Limits are for the 2026/27 tax year (1 March 2026 to 28 February 2027). This article is general information and not financial advice. Speak to a registered financial adviser before you invest.