South African taxpayers are being urged to make full use of every legitimate strategy available to lower their tax liability before the current tax year concludes at the end of February 2025. The closing weeks of the financial year present a narrow but highly valuable window for proactive financial planning.
Key Takeaways
- Act Before The February Deadline: Contributions to Tax-Free Savings Accounts and Retirement Annuities must be made before the end of the tax year to secure current-year tax benefits.
- Use Both Tools Strategically: Retirement Annuities reduce taxable income immediately, while Tax-Free Savings Accounts provide long-term tax-free growth and flexibility.
- Maximise Contribution Limits Carefully: Staying within annual caps avoids penalties and allows investors to accelerate compounding, especially by timing contributions across tax years.
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Expert Advice Highlights Urgent Year-End Tax Planning Opportunities
This guidance comes from Sinawo Makalima, a financial adviser at Alexforbes, who emphasises that the end of the tax year represents a firm deadline that should never be overlooked or underestimated.
Makalima explains that the final stretch before the tax year closes offers a rare opportunity to implement financial decisions that can immediately reduce an individual’s tax payable while simultaneously building long-term financial security and wealth.
He identifies two particularly effective and accessible tools that stand out for most South Africans. These are Tax-Free Savings Accounts and Retirement Annuities, both of which offer meaningful tax advantages when used correctly.
While many taxpayers only focus on submitting returns during filing season, proactive year-end planning can significantly reduce the final tax outcome before assessment.
Tax-Free Savings Accounts as a Flexible Tax Tool
Makalima highlights that a Tax-Free Savings Account is often the most straightforward entry point for individuals beginning their investment journey. It requires relatively little capital to start and provides substantial long-term benefits.
He indicates that a Tax-Free Savings Account should be considered by virtually every South African investor due to its structural tax advantages.
Importantly, a high income is not required to begin investing through this vehicle. Numerous financial institutions permit monthly contributions from as little as R250, making the product accessible across income brackets.
Investors are permitted to contribute up to R36 000 per tax year. Remaining within this annual cap is essential, as exceeding the limit triggers penalties from the South African Revenue Service.
Excess contributions to a TFSA are taxed at 40 percent by SARS, making careful tracking of annual deposits extremely important.
Timing Can Double the Immediate Opportunity
Makalima underscores that timing plays a decisive role in maximising the TFSA benefit. If an individual contributes the full R36 000 before the end of February, they may contribute a further R36 000 as soon as the new tax year begins in March.
This strategy enables an investor to channel R72 000 into tax-free growth within a relatively short timeframe, significantly accelerating compound returns.
The tax-free structure is particularly powerful because every category of investment return remains untouched by the South African Revenue Service.
Within a Tax-Free Savings Account, investors do not pay:
- Capital gains tax
- Dividend withholding tax
- Tax on interest earned
Over extended periods, the cumulative effect of compounding without these tax deductions can dramatically enhance the final value of the investment portfolio.
For younger investors, beginning a TFSA early can mean decades of uninterrupted tax-free compounding, which may result in significantly higher retirement capital compared to taxable investments.
Accessibility and Withdrawal Considerations
Unlike retirement-focused investment products, Tax-Free Savings Accounts offer flexibility. Funds can be withdrawn when necessary, which makes them suitable not only for long-term objectives but also as a secondary emergency reserve.
However, Makalima cautions that withdrawals carry a permanent implication. Any amount withdrawn cannot be replaced beyond the annual and lifetime contribution limits.
This means that once funds are removed, the contribution room is permanently reduced, which may compromise long-term growth potential.
The lifetime contribution limit for a TFSA is R500 000. Reaching this cap early and allowing growth over time can significantly enhance long-term outcomes.
He further notes that the true strength of a Tax-Free Savings Account becomes more evident over longer investment horizons. During retirement, withdrawals from a TFSA do not increase taxable income, making them a useful complement to pension income.
Unsure whether you even need to file? Our guide on the minimum salary to pay tax in South Africa explains income thresholds, exemptions, and when registration becomes mandatory. It is essential reading before assuming you fall below the tax net.
Retirement Annuities and Immediate Tax Relief
While TFSAs offer flexibility, Retirement Annuities provide a more immediate and direct reduction in taxable income. Contributions to an RA are deductible within specified limits, lowering the taxable income declared for the year.
Taxpayers may contribute up to 27.5 percent of their taxable income, subject to an annual cap of R350 000. The full amount contributed within these limits reduces taxable income accordingly.
To illustrate, a person earning R250 000 annually who contributes R1 800 per month, equating to R21 600 per year, reduces their taxable income by that amount. This could translate into an approximate tax saving of R4 920, depending on their marginal tax bracket.
This effectively means that part of the retirement investment is indirectly funded through reduced tax payable, creating an incentive for long-term saving.
Furthermore, growth within a Retirement Annuity is also sheltered from tax while the funds remain invested.
This includes protection from capital gains tax, dividend tax and income tax within the retirement structure, allowing for more efficient long-term compounding.
Trade-Off Between Access and Protection
The principal compromise associated with Retirement Annuities relates to access. Funds invested in an RA are preserved until retirement age and are subject to Regulation 28 investment restrictions.
Regulation 28 limits exposure to certain asset classes to ensure diversification and to protect investors from excessive risk concentration.
Although Regulation 28 restricts maximum equity and offshore exposure, it is designed to prevent overexposure to high-risk assets, particularly in volatile market conditions.
While this reduces flexibility compared to a TFSA, it also introduces a layer of disciplined investment management that may benefit long-term savers.
If you are employed, PAYE already forms part of your monthly deductions. Understanding what is PAYE (Pay As You Earn) helps you see how SARS calculates your tax and why underreporting income is easier to detect than many believe.
Comparing TFSAs and Retirement Annuities
The choice between these two products depends heavily on individual financial objectives, income levels and liquidity needs. Ideally, a balanced strategy may incorporate both instruments.
| Feature | Tax-Free Savings Account | Retirement Annuity |
|---|---|---|
| Annual Contribution Limit | R36 000 | 27.5% of taxable income, capped at R350 000 |
| Tax Deduction Now | No | Yes |
| Tax On Growth | None | None |
| Accessibility | Withdraw anytime | Preserved until retirement |
| Impact On Retirement Income Tax | No impact | Taxable according to retirement rules |
Makalima advises that individuals seeking to reduce their tax liability immediately and who are committed to long-term retirement planning may prioritise a Retirement Annuity.
Conversely, those who value liquidity and tax-free growth without preservation restrictions may find a Tax-Free Savings Account more suitable.
For individuals at the beginning of their financial journey or operating within limited budgets, commencing with a TFSA may be practical. As income rises, incorporating an RA can enhance overall tax efficiency.
A blended strategy can also create diversification across tax treatments, giving retirees greater flexibility when structuring income withdrawals later in life.
Urgency as the Deadline Approaches
With only weeks remaining before the tax year concludes at the end of February, urgency is critical. Delaying contributions until after the deadline means forfeiting the current year’s tax advantages permanently.
Whether topping up a Tax-Free Savings Account to reach the annual limit or making an additional contribution to a Retirement Annuity, acting before the closing date can produce enduring financial benefits.
Tax planning should ideally form part of an annual financial review conducted before year-end, ensuring that allowances are fully utilised rather than wasted.
The closing weeks of the tax year represent more than just a deadline. They provide a strategic opportunity for disciplined savers to reduce tax exposure, strengthen retirement readiness and position themselves more securely for the years ahead.
If you’ve delayed submitting your tax return, SARS Tax Filing Alert for South Africans Earning Over R500k Annually explains why SARS is enforcing filing obligations more strictly and what could happen if you miss the deadline. It’s essential reading for anyone worried about penalties and compliance deadlines.
Conclusion
With the tax year closing at the end of February, South Africans have a limited but meaningful opportunity to reduce their immediate tax burden while strengthening their long-term financial position. By fully utilising Tax-Free Savings Accounts for flexible, tax-free growth and Retirement Annuities for upfront tax deductions, individuals can improve both current affordability and future retirement security. Acting before the deadline ensures that available allowances are not wasted and that every rand invested works more efficiently within a structured, tax-optimised plan.
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