Savvy RA investors let SARS fund their Tax-Free Savings Account (or their kid's one)

Machiel Reyneke is 10X Investments' Product Management Lead. He is an engineer, not a financial advisor, and what follows should not be construed as advice.

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Many South Africans treat investing in their retirement fund and their tax-free savings account (TFSA) as two separate processes, two separate money decisions. You decide how much to put into your pension or provident fund, or retirement annuity. Then you decide whether to fund your TFSA. It feels like finding the money for both is some kind of tradeoff.

But it doesn’t have to be. Taken together, the combination forms one of the most underrated wealth-building strategies available to a working professional in South Africa. And we’ll take you through some compelling maths below to back up that claim.

The basic idea is that if you contribute to your retirement fund (whether that is your work pension, a provident fund, or a separate retirement annuity), SARS will give you a chunk of it back as a tax refund. If you redirect that refund into your TFSA instead of letting it disappear into your current account, you have effectively used SARS to create a pile of money that grows tax-free for the rest of your life, and that you can withdraw and use tax-free, too.

It doesn’t feel like a smart hack. It feels like admin. But over 25 years it can add up to hundreds of thousands of rand in tax that you simply don’t pay.

The mechanic, in three steps

Step 1: Top up your retirement fund. From 1 March 2026, you can deduct retirement fund contributions of up to 27.5% of the greater of your remuneration or taxable income, capped at R430,000 a year. That cap was lifted from R350,000 in February's Budget, the first increase in a decade. Whatever you contribute (employer plus employee, across all your retirement funds combined) counts toward the limit. If you are contributing less than the cap, you have headroom to use.

Step 2: Get the tax back. If you top up via a separate RA, the refund comes as a lump sum after you submit your tax return. If you top up via your work pension or provident fund through additional voluntary contributions, the saving comes through immediately as lower monthly PAYE, so your take-home pay goes up. Same money, different timing. The size of the refund depends on your marginal tax rate. Someone in the 36% bracket gets back 36 cents for every rand contributed; someone in the 41% bracket gets back 41 cents.

Step 3: Redirect the refund into your TFSA, or a TFSA for your child. This is the step almost nobody takes deliberately. The annual TFSA contribution limit is now R46,000 (also lifted in the latest Budget, from R36,000). For many earners, a tax refund alone gets you most of the way there. Money inside a TFSA grows free of dividends tax, interest tax, and capital gains tax, and stays free of tax forever, even when you withdraw.

The cleanest way to make sure the refund actually lands in the TFSA is to transfer it straight across, the moment it hits your bank account. Don't park it in a savings account or waste time in any other way. The temptation to use it might be too great. Rather, treat it as already-allocated money. If you are using monthly AVCs into a work pension instead of a once-off RA top-up, your tax saving shows up as a slightly fatter pay-cheque each month, in which case set up a monthly TFSA debit order for that amount so the money never sits in your current account at all.

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What it actually looks like

Meet Thabo. He is 40, earns R900,000 a year, and his workplace already contributes 15% of his salary to a pension fund (R135,000). He is comfortably below his 27.5% cap, which is R247,500.

Thabo decides to top up his retirement contributions by R112,500, filling his cap. His taxable income drops from R765,000 to R652,500. His tax bill drops by R42,576. That refund covers 93% of his R46,000 TFSA contribution; he finds R3,400 from his own pocket to top it off.

Step back and look at what Thabo has done in one year:

Thabo put R73,000 of his own after-tax money to work, and ended up with R158,500 invested. His savings stretched 2.2x. Some of that is locked in his retirement fund until age 55; the R46,000 in his TFSA is his to access whenever he wants.

That is the short-term picture. The long-term picture is where it gets interesting.

The long-term: hundreds of thousands not paid in tax

Thabo keeps doing this. Each year, his refund funds his TFSA. After 11 years, he hits the R500,000 lifetime TFSA contribution cap and stops contributing. He lets the money compound for the rest of his working life.

Using the 10X Your Future Fund's investment objective of CPI + 5.5% (so 5.5% above inflation, in real terms), Thabo's TFSA at age 65 could be worth about R1.5 million in today's money.

If Thabo had invested the same R46,000 a year in a regular discretionary unit trust instead, he would have paid dividends tax, interest tax above the R23,800 exemption, and capital gains tax on disposal. Morningstar estimates the annual tax drag on a local high-equity portfolio at roughly 1.2% per year. Apply that drag plus capital gains tax at his 41% marginal rate on the final disposal, and Thabo's discretionary pile could be worth about R1.07 million.

That is roughly R400,000 in tax that Thabo could avoid paying, in real terms, by using the TFSA wrapper. The same contributions, the same returns, just a different tax envelope.

And if Thabo had started this 10 years earlier, at 30 instead of 40, the same R500,000 of contributions could grow to about R2.5 million by age 65. Roughly R1 million more, for the price of starting 10 years sooner.

If Thabo was using this mechanic to fund a TFSA for his child, the numbers get borderline fantastic. If he maxes out the account by the time his child is 11, and his child accesses the money at 65, that R500,000 has grown roughly R12.6 million in today's money. That is the power of starting 40 years earlier.

What it looks like at other salary levels

The tax-refund piece scales with your marginal tax rate, so the strategy gets more powerful the more you earn:

At higher salaries, the refund more than covers the full TFSA contribution. At lower salaries, the refund covers a meaningful chunk and you top up the rest from your own savings. In all three cases, if you fund the cap to its lifetime limit, the TFSA could grow to around R1.5 million at age 65 in real terms. The difference is the proportion of that money that came from SARS rather than your bank account.

Ok you ask, where’s the catch?

Here are a few honest caveats so you go in with eyes open:

• The retirement fund money is locked. Anything you contribute is largely inaccessible until age 55. The savings pot under the Two-Pot system gives you some flexibility, but the bulk of the contribution is for retirement, not life events.
• You will pay tax on the way out, on the retirement fund portion. The TFSA portion is genuinely tax-free at withdrawal, but retirement fund withdrawals are taxed (favourably for the lump sum, at marginal rates for the annuity income after you choose a life annuity or a living annuity). For most working professionals, the marginal rate at retirement is lower than the rate during peak earning years, so the timing still works in your favour.
• You need the cash flow to make the top-up in the first place. SARS does not write you a refund out of thin air. You have to fund the additional retirement contribution yourself; the refund is a partial reimbursement.
• The TFSA lifetime cap fills quickly. At R46,000 a year, you hit R500,000 in just under 11 years. After that, the strategy still works for the retirement fund piece, but the refund needs a new home.
• If you are already maxing out at 27.5%, you have no room to top up further this year. The strategy applies to the headroom you have. Excess contributions do carry forward to future years though, so they are not lost.

What to do this week

If this sounds like it could work for your situation, three practical steps:

• Find your headroom. Add up your employer plus your own retirement contributions across all funds. If the total is less than 27.5% of your remuneration (and below R430,000), you have room to top up. The 10X tax calculator will show you the refund.
• Decide where the top-up goes. A separate RA gives you full control over your fund choice and provider, and the refund comes as a lump sum at year-end. Additional voluntary contributions to your work pension are a second option, with the tax saving coming through monthly via lower PAYE.
• Pre-commit the refund to your TFSA. Decide now where the refund is going and move it the moment it arrives. Better yet, open the TFSA in advance so the destination account already exists and the transfer takes one tap. The 10X TFSA calculator shows what it grows into.

If you want to talk it through with someone, our consultants will run the numbers with you. No fee, no pressure. Book a call here. Money you would have paid in tax, working for you for 25 years, in a wrapper SARS cannot touch. That’s probably worth a Saturday morning's admin.