One way to make over R100,000 tax-free in South Africa

By investing in your tax-free savings account (TFSA) at the beginning of the tax year, you could earn over R100,000 more tax-free than if you invested at the end of the period. 

While many aren’t able to commit a R36,000, now R46,000, lump sum at the beginning of the tax year, this comparison shows why it is important to invest as early as possible. 

This results in investments being front-loaded and benefiting from additional compounding, generating superior returns over an investment period. 

Research from South Africa’s largest private asset manager, Ninety One, showed that the sooner one invests in their TFSA, the greater their returns. 

TFSAs were first introduced in 2015 to encourage South Africans to save more, particularly for retirement, and the Finance Minister’s raising of the annual contribution limit to R46,000 has increased the potential benefits for individuals.

The ten years since the inception of TFSA have given Ninety One a sufficiently long track record to analyse whether individuals are maximising the potential benefits. 

“The growth and income received on a TFSA are tax-free, which means that you are not liable for any capital gains tax or income tax on the dividends and interest received on your investment,” Ninety One explained. 

This makes them a very attractive investment vehicle. However, the data shows that South Africans are not making full use of them. 

Ninety One said that at the end of 2025, only 46,609 TFSA accounts had been opened with them, with an average value per account of R147,164. 

These accounts hold assets valued at R6.74 billion, a drop in the ocean for an asset manager like Ninety One, which has R3.53 trillion in assets under management as of their latest interim results.

However, as education about the value of TFSAs increases, particularly when coupled with retirement annuity funds, Ninety One expects the popularity of these investment vehicles to grow. 

The asset manager also noted that while many have not fully reaped the benefits of TFSAs, others have. One client, for example, has already crossed R1.13 million in account value, before reaching the lifetime contribution limit of R500,000. 

When it is best to invest

One of the easiest ways to benefit from TFSAs more effectively is to invest as much as possible as early as possible. 

This gives the funds in the account the most time to compound, resulting in significantly more value at maturity, even with the same limits applied. 

Ninety One’s Paul Hutchinson crunched the numbers back in 2022 to show that this is the case with investing in TFSAs, which are unique in that they have an annual and lifetime limit. 

Many think that with these limits, investment outcomes will converge towards a mean as investors effectively invest the same amount. 

However, this is not the case, with even a small change, such as investing at the beginning of a tax year rather than the end, resulting in significant divergence. 

“Maximising any tax benefit is an important consideration, as is acknowledging that the earlier you start earning investment returns, the earlier those investment returns start compounding,” Hutchinson said. 

Hutchinson used an example of three investors to illustrate the point, using the annual limit of R36,000 that was in place prior to the increase announced in the 2026 Budget.

Investor 1 invests the full R36,000 allowance at the start of the tax year. Investor 2 invests R3,000 monthly, and Investor 3 invests R36,000 at the end of the tax year. 

All the investors invested in the Ninety One Opportunity Fund, which has an average annual return of 12.9%, until they reached their lifetime limit of R500,000 in the 14th year of investment.

Simply investing in the Ninety One Opportunity Fund via a TFSA at the beginning of each tax year, as opposed to the end of the tax year, results in as much as an additional 10% payout after 15 years. 

And for those who cannot commit to an investment of R36,000 at the beginning of each tax year, the data also shows it is still more financially rewarding to initiate a monthly debit order. 

This method results in an additional 5% compared to investing R36,000 at the end of each tax year.

The different return profiles of the three investors over a 15-year period, created by Hutchinson for the example, are shown in the graph below. 

With the annual limit increasing to R46,000 in the new tax year, this principle will still apply, as the earlier one invests, the more time their capital has to compound. 

Using the Ninety One account with the highest value, which is invested in the same fund used in the example, an investor can end up with an additional R100,000 tax-free by investing earlier.