TFSA vs Retirement Annuity (RA): How to Split Your Money

•4 min read

TL;DR: Max your TFSA first. When you can invest more than R3,000/month, add an RA for the tax deduction. Do both over time. Consistency beats optimization.

TFSA vs RA at a glance

Tax-Free Savings Account (TFSA)

  • Annual limit: R36,000 (R3,000/month)
  • Lifetime limit: R500,000 total contributions
  • Tax: No tax on growth, dividends, or withdrawals
  • Access: Withdraw anytime (but you lose that contribution room forever)
  • Upfront deduction: None

Want a deeper dive? See Understanding Tax-Free Savings Accounts.

Retirement Annuity (RA)

  • Deduction limit: Up to 27.5% of taxable income, capped at R350,000/year for the deduction
  • Lifetime limit: None
  • Tax: Contributions reduce taxable income now; withdrawals are taxed later
  • Access: Generally locked until age 55 (with limited early access)

Together, they give you the best of both worlds: tax savings today (RA) and tax-free withdrawals tomorrow (TFSA).

The simple plan

  • If you can invest ≤ R3,000/month: Put it all in your TFSA.
  • If you can invest > R3,000/month: R3,000 to TFSA, the rest to RA.
  • After ~14 years, you'll hit the R500,000 TFSA lifetime cap. From then on, direct all retirement savings to your RA.

Why this works:

  • TFSA gains and withdrawals are tax-free forever, simplifying retirement.
  • RA contributions lower today's tax bill, which boosts how much you can invest.

Example: R4,000/month over 20 years

Assumptions:

  • 10% annual return
  • 27% marginal tax rate
  • RA contributions are tax-deductible; withdrawals later taxed at 27% (simplified)

Years 1-14 (max TFSA first):

  • TFSA: Contribute R3,000/month until the R500,000 lifetime cap is reached (you'll reach it in year 14; the last year is ~R32,000 to hit the cap).
  • RA: Contribute R1,000/month alongside TFSA.
  • Approximate tax saved on RA in this phase: ~R45,360 (R270/month × 12 × 14).

Years 15-20 (TFSA capped, all to RA):

  • TFSA: No new contributions (cap reached).
  • RA: Contribute the full R4,000/month.
  • Approximate tax saved on RA in this phase: ~R77,760 (R1,080/month × 12 × 6).

Very rough outcomes after 20 years:

  • TFSA value: ~R1.74M (tax-free)
  • RA value: ~R960K (before tax on withdrawal)
  • Total tax saved from RA contributions: ~R123,120

Bottom line: RA's tax deduction is great, but TFSA-first keeps retirement simpler and preserves tax-free withdrawals. Once TFSA is maxed each year, channel the rest to RA.

When to tilt toward RA sooner

  • Higher marginal tax rate: The bigger your tax rate, the bigger the RA deduction now. Check your rate with the Income Tax Calculator. If you're in a higher bracket, prioritise contributing more to retirement (after maxing TFSA) to maximise the deduction.
  • Closer to 55: RA's tax sheltering can be more valuable as retirement nears.
  • Discipline: If the lock-in helps you avoid withdrawals, RA can be an advantage.

A phased approach (optional)

Ages 25-35

  • Prioritise maxing TFSA; add RA with any extra.
  • Aim to hit the R500,000 TFSA lifetime cap early to maximise years of tax-free growth.

Ages 35-50

  • Continue TFSA (if not yet capped) and increase RA to maximise deductions, especially in higher brackets.

Ages 50-55

  • Focus on RA contributions. If TFSA isn't capped yet, finish it, then direct all to RA.

Common scenarios

  • You can save R3,000/month: Max TFSA. You'll reach the lifetime cap in ~14 years.
  • You can save R4,000/month: Do R3,000 TFSA + R1,000 RA.
  • You can save R6,000+/month: R3,000 TFSA, rest to RA. After TFSA cap, all to RA.
  • You're 45 and starting: R3,000 TFSA, rest to RA. Lean into RA deductions in higher brackets.

Action steps

  1. Decide how much you can invest monthly.
  2. ≤ R3,000: Use TFSA. > R3,000: R3,000 TFSA, rest RA.
  3. Track progress with the TFSA Calculator.
  4. Set up debit orders. Increase contributions as your income grows.

Want to dig deeper?

Disclaimer: This is not financial advice. Tax calculations are estimates based on 2025/2026 rates. Investment returns are hypothetical and not guaranteed. The example uses a fixed R4,000/month for illustration; real incomes usually rise, which may change the split. Consult a qualified professional for advice tailored to you.