IN A NUTSHELL Every February, ask yourself these two tax-saving questions: Can you top up your retirement contributions, and can you add to your tax-free savings?
February is the last month of the tax year. Have you used the two tax benefits available to every worker in South Africa?
1 Save on your yearly tax bill by contributing to a retirement fund – these contributions reduce the amount of income SARS taxes each year.
2 Save on tax over your lifetime by investing in a Tax-Free Savings Account (TFSA), where all the growth is completely tax-free.
Nomnikelo explains….
Let’s explain tax deductions:
Each year, you’re taxed on the money you earn. That’s your taxable income. Retirement contributions reduce your taxable income — but only if you act before the tax year closes.
Lerato earns R25 000 a month. Her income is R25 000 x 12 months = R300 000. It’s complicated, but in the end, she must pay R41 797 tax. (Read Understanding tax thresholds and rates to understand how tax is determined.)
The South African Revenue Service (SARS) allows certain tax deductions. These amounts can be deducted from her taxable income of R300 000. Let’s say Lerato qualifies for a R10 000 tax deduction.
R300 000 – R10 000 = R290 000
She only pays tax on the R290 000, which comes to R39 197 in tax. That’s R2 600 less than the initial amount.
1 Reduce your tax with retirement contributions
Contributions to a retirement product count as a tax deduction. But there is a limit on the National Treasury’s generosity. You’re allowed to deduct retirement contributions each year, up to whichever is lower: R350 000 or 27.5% of your taxable income (before retirement deductions).
Step 1: Know your limit
If your contributions haven’t reached the R350 000 or 27.5% limit yet, you can top up your retirement fund or retirement annuity (RA) contributions before 28 February and reduce your tax bill. Your employer can inform you of how much you’ve contributed so far, or you can review your RA statement. Let’s look at what is possible for Lerato:
Nomnikelo explains….
The graphic above shows what is possible if Lerato maximises her retirement contributions.
For most of us, that’s not always possible. In reality, Lerato contributes R1000 per month to her retirement fund, so only R12 000 per year.
Her remuneration = R300 000 per year. She can deduct her retirement contributions
R300 000 – R12 000 = R288 000
She pays tax on R288 000 (this is also called taxable income), which comes to R38 677.
Enter the tax deduction:
As we’ve shown above, Lerato could contribute R82 500 per year to her retirement fund (27,5% of her taxable income before retirement deductions).
Lerato decides to contribute a further R11 000 from her bonus to her retirement fund.
She can now deduct R12 000 of monthly contributions and R11 000, a total of R23 000, from her taxable income. Her total tax payable comes to R35 817, so R2 860 less.
Step 2: Decide where to top up
- If you have a workplace fund: Ask HR whether they allow extra voluntary contributions (AVCs). Or check if they have flexible contribution rates and then adjust your contribution higher according to your affordability.
- If you have an RA: You can make a once-off lump-sum contribution directly to your RA provider before the end of February. (You can belong to a workplace fund and have an RA.)
Step 3: Keep your proof
Make sure you receive your RA contribution certificate or that your employer includes AVCs on your IRP5. SARS uses these documents to calculate your tax deduction.
Why? Retirement contributions are one of the few legal ways to pay less tax while saving for your future. You are essentially using money that would have gone to SARS to boost your retirement.
What trustees should know
Encourage members to check their retirement contributions. Even a small top-up can reduce tax. For workers who receive bonuses in December, January or February, it is the perfect time to put an extra portion towards retirement. Also emphasise to members that all growth in your retirement fund is completely tax-free.
2 Tax-free savings accounts (TFSAs): Grow your money, tax-free
TFSA contributions aren’t tax-deductible like retirement contributions, but a tax-free savings account lets your money grow without any tax on interest, dividends or capital gains.
Step 1: Stick to the limits
There are limits to how much you can save in a TFSA:
- R36 000 per year
- R500 000 lifetime limit
In February, always check your account. If you still have room before reaching R36 000 for this tax year, you can contribute extra before the end of the month.
Step 2: Open or top up
Most banks, insurers and investment platforms offer TFSAs. You can deposit once-off or monthly.
Step 3: Avoid penalties
If you contribute more than the annual R36 000 limit, SARS will charge a 40% penalty on the extra amount.
Nomnikelo explains….
Lerato contributes R500 per month to a TFSA, that’s R6 000 per year. She can still contribute another R30 000 before the end of February.
She has R9000 left from her bonus and decides to save it in the TFSA, which now stands at R15 000, because every little bit counts.
A simple guide for the 2026 tax season
If you are an employee with one job
Your tax return is usually straightforward. SARS already receives your IRP5 from your employer. Your job is mainly to:
- Check your IRP5 is correct.
- Make sure your retirement annuity (RA), if you contribute towards one, and medical-aid certificates are correct.
- Confirm your personal details.
For most workers, you simply review and submit.
If you have extra income (side hustle, freelance, rental)
Your tax return becomes more complex. You must:
- Add all extra income earned.
- Keep proof of expenses you want to deduct.
- Upload certificates for interest, dividends and RA contributions.
- Keep records of invoices, bank statements and receipts.
Failing to declare this income can lead to penalties. If you are unsure, visit the SARS website or contact them for an appointment.
