TFSA vs RA: which should you start first?
Both save you tax, but in opposite ways. Here's how to choose between a tax-free savings account and a retirement annuity when you're starting out.
6 min read
If you've just started earning, you've probably heard you should have "a TFSA and an RA". But which one first? They both shelter your money from tax — they just do it at opposite ends.
The one-line difference
- TFSA: you invest money you've already paid tax on, and then never pay tax again — no tax on interest, dividends, or growth, ever.
- RA: you invest money before tax (SARS refunds you at your marginal rate), but you pay some tax when you retire and draw the money.
How a TFSA works
You can contribute up to R36,000 per tax year and R500,000 over your lifetime. Inside the account, everything grows completely tax-free.
Two rules trip people up:
- The 40% penalty. Contribute more than R36,000 in a tax year and SARS taxes the excess at 40%. Track your contributions across all providers — the limits apply to you, not per account.
- Withdrawals don't restore room. If you put in R36,000 and withdraw R10,000, you can't top it back up this year. Your lifetime limit is also permanently used.
Use our TFSA tracker to stay under the limits.
How an RA works
Contributions to a retirement annuity (or your employer pension) are deducted from your taxable income — up to 27.5% of your income, capped at R350,000 a year.
That means SARS effectively pays part of every contribution. If your marginal tax rate is 26%, a R1,000 monthly contribution really costs you R740. See your own numbers in the RA calculator.
The trade-offs: your money is locked up until age 55 (with limited exceptions under the two-pot system), and withdrawals at retirement are taxed — though usually at a lower rate than you paid while working.
So which first?
There's no single right answer, but a common way to think about it:
| Situation | Lean towards |
|---|---|
| Low income, tax rate near the bottom | TFSA — the RA refund is small at 18% |
| Employer matches pension contributions | Take the match first — it's free money |
| Higher earner (31%+ marginal rate) | RA deduction becomes very valuable |
| Might need the money before 55 | TFSA — an RA locks it away |
Many people do both: enough RA/pension to get the employer match and tax benefit, plus whatever they can toward the R36,000 TFSA limit.
The bottom line
Start with something. A R500/month debit order into either account in your twenties beats a perfect decision made in your thirties. Time in the market is the part you can't get back.