RA tax savings explained

Retirement annuity contributions are deductible against your South African income tax. Here's the 27.5% / R350 000 cap, who benefits most, and what it actually saves.

Updated By the ZACalc team

The deduction

Contributions to a Retirement Annuity (RA), pension fund, or provident fund are deductible against your taxable income — up to 27.5% of remuneration or taxable income (whichever is greater), capped at R 350 000 per year across all retirement funds combined.

What the saving is worth

The cash saving is your contribution × your marginal tax rate. So a 41%-bracket earner contributing R 5 000/month (R 60 000/year) saves R 24 600 in tax — effectively the government pays 41% of every rand they put away.

Worked example

You earn R 600 000 a year. The cap on deductible contributions is the lower of:

  • 27.5% × R 600 000 = R 165 000
  • R 350 000 (the absolute cap)

So you can deduct up to R 165 000 of contributions. Anything above that rolls over to the next tax year. At a 36% marginal rate, contributing the full R 165 000 saves R 59 400 in income tax.

Tax-free growth, taxable withdrawal

Returns inside the RA are tax-free — no tax on interest, dividends or capital gains. When you retire, the first R 550 000 of the lump sum is tax-free; the rest is taxed at retirement-fund tables (usually lower than your working-life rate). The annuity income you draw is taxed as ordinary income.

Who benefits most

  • High earners — bigger marginal rate, bigger saving per rand.
  • Self-employed — RAs are the only retirement vehicle available.
  • Tax-arbitrage savers — pay no tax going in, lower tax coming out.

Watch-outs

  • Money is locked until age 55 (with limited exceptions).
  • Regulation 28 limits offshore exposure to 45% and equity to 75%.
  • Fees can erode returns — pick low-cost providers (under 1% TER).