2 powerful February tax strategies that could save South Africans money

As we approach the end of February, phrases like ‘tax year-end,’ ‘financial year-end,’ and ‘tax return season’ become part of everyday conversation. This period is crucial for South Africans, as it marks the deadline for ensuring all contributions, deductions, and tax-related decisions are finalised before the new tax year begins. These actions ultimately shape the tax return you’ll file in July when Sars officially opens tax season.

As a financial planner, I am often asked the same questions at this time of year:

1. How can I reduce my tax?
2. Which strategies can I still use before 29 February?
3. What opportunities does Sars give us through legislation?

Today, I want to discuss two strategies that consistently help individuals reduce their tax burden while building long-term wealth.

The power of investing in a retirement annuity (RA)

If you don’t belong to a company fund where you can make additional contributions, a retirement annuity remains one of the most effective tools for reducing taxable income before the tax year-end.

By investing in an RA, you can reduce your taxable income for the year. Sars allows you to deduct up to 27.5% of your taxable income, capped at R350,000 per year.

Example scenario

A person earning R1 million who contributes the full 27.5% (R275,000) reduces their taxable income to R725,000.

• Tax saving: R110,092
• Effective tax rate drops from 29.2% to 25.1%

Person B not only reduces their tax immediately but also invests significantly toward their retirement

Additional advantages of a retirement annuity

Some of the other key benefits of an RA include:

• Tax-free investment growth: No tax on interest, dividends, or capital gains inside the RA, allowing your money to compound faster.
• Beneficiary nominations: You can nominate beneficiaries so funds do not automatically form part of your estate (allocation still subject to Section 37C), which can reduce certain estate costs.
• Creditor protection: RAs are generally protected from creditors, offering an additional layer of financial security for professionals and business owners.
• Portable across employers: Your RA is independent of your job - you can continue contributing even if your employment changes.
• Flexible contributions: You can increase, decrease or pause contributions based on your financial situation. Many investors don’t realise that you can also make ad-hoc lump-sum contributions into a Retirement Annuity - it doesn’t need to be a fixed monthly debit order.
• Structured for long-term discipline: Funds cannot be accessed before age 55 (except in specific circumstances), helping investors stay committed to long-term retirement goals.

Maximising long-term growth through a tax-free savings account (TFSA)

A tax-free savings account offers unmatched long-term benefits: all interest, dividends and capital growth are completely tax-free.

Contribution rules

• R36,000 per year
• R500,000 lifetime limit

Unused TFSA allowances cannot be carried forward. If you don’t invest before 29 February, you lose the opportunity for that year permanently and it takes you longer to get to the lifetime limit.

TFSAs are ideal for long-term wealth due to their tax efficiency and flexibility, making them perfect for investors who want accessible, penalty-free savings with compounding growth over time.

Why you should act early, not in late February

Many people only realise the need to contribute to an RA or TFSA late in January or even deep into February. While this is understandable, it often creates unnecessary pressure on both financial planners and investment institutions. Providers face a surge of last-minute instructions, and in some cases, processing times are delayed due to high volumes. This can result in contributions reflecting after 1 March, meaning they fall into the next tax year, and investors lose out on the deduction or TFSA allowance they intended to use.

For this reason, it’s crucial to engage with your financial planner sooner rather than later to ensure the strategy, paperwork, and contributions are finalised well before the deadline. You also benefit from compound interest for longer on the higher amount.

February isn’t just a deadline, it’s an opportunity.

Using an RA and TFSA thoughtfully allows you to:

• Reduce your taxable income
• Increase your potential tax refund
• Grow long-term, tax-efficient wealth
• Strengthen your retirement and financial security

With the right planning, Sars effectively helps you save. Use this window to your advantage. If you’re unsure how much contribution room you still have or how to structure these strategies for maximum benefit, speak to a qualified financial planner. Small decisions today often create the biggest rewards tomorrow.

* Loots is a financial adviser at Alexforbes.

PERSONAL FINANCE