Retirement annuity or tax-free savings account? How the two compare in 2026/27
One gives you a tax deduction now, the other tax-free growth and access. The limits changed in Budget 2026. A side-by-side comparison using the current SARS figures.
By DPI Financial Services
General information, not advice. Figures checked September 2026.
In short: a retirement annuity (RA) gives you a tax deduction on contributions, up to 27.5% of the greater of your remuneration or taxable income and capped at R430,000 a year from 1 March 2026, but the money is locked in until retirement and taxed on the way out. A tax-free savings account (TFSA) gives no deduction, but growth and withdrawals are tax-free and the money stays accessible, with contributions limited to R46,000 a year from 1 March 2026. For many people the answer is both, in the right order.
Side by side
| Retirement annuity | Tax-free savings account | |
|---|---|---|
| Tax on contributions | Deductible, up to 27.5% of the greater of remuneration or taxable income, capped at R430,000 a year | Not deductible |
| Contribution limit | No cap on contributing. Contributions above the deduction limit carry forward to later years | R46,000 a year, R500,000 over your lifetime |
| Tax on growth | None inside the fund | None |
| Access | From age 55, plus the two-pot savings component | Any time |
| Tax on the way out | Lump sums under the retirement tables (first R550,000 at 0%), income taxed as earned | None |
| Investment limits | Regulation 28 limits apply | None from Regulation 28 |
When the retirement annuity tends to win
The deduction is worth most when your marginal tax rate is high now and likely to be lower in retirement. The tax saved each year is effectively extra money invested. The fact that you cannot easily reach it is also, for many people, the feature that makes it work.
When the tax-free savings account tends to win
A TFSA suits money you may need before retirement, people on lower tax rates who gain less from a deduction, and anyone who has already used their RA deduction. Because withdrawals are not taxed, it can also be a flexible source of income later in life.
Rules that catch people out
- TFSA over-contributions attract a penalty of 40% of the excess. Contributions across all your tax-free accounts count towards one limit.
- Withdrawing from a TFSA does not give you the allowance back. Money taken out and put back in the same year counts twice.
- RA contributions above the deduction limit are not lost. They carry forward to later years and can reduce the tax on your retirement benefits.
Common questions
How much can I put into a tax-free savings account in 2026/27?
R46,000 for the tax year from 1 March 2026 to 28 February 2027, within a lifetime limit of R500,000.
What is the retirement annuity tax deduction limit?
Contributions to pension, provident and retirement annuity funds together are deductible up to 27.5% of the greater of remuneration or taxable income, and no more than R430,000 a year from 1 March 2026.
Can I have both an RA and a TFSA?
Yes, and many people do. The order in which you fund them depends on your tax rate, your time horizon and whether you might need the money sooner.
What happens if I contribute more than R46,000 to a TFSA?
SARS charges a penalty of 40% on the amount above the limit.
Which comes first depends on your own tax position. Book a conversation, or see our investments page.
