Treasury Lifts Annual TFSA Limit To R46 000

Tax-free investing has just become a little more generous, and a little more awkward on your debit order. From next month, savers will be able to channel R46,000 a year into a tax-free savings account, the first increase in the annual limit in five years. It’s a win for long-term investors, even if it means staring at R3,833.33 a month instead of a tidy round number.

 TJ Strydom from Currency unpacks what the change means for savers, why Treasury has finally budged, and how close some investors now are to hitting the lifetime cap. 

Savers and investors have Finance Minister Enoch Godongwana to thank for the very wobbly amount of R3833,33 that will soon reflect on thousands of debit orders.

That’s because from next month, South Africans will be able to pile R46,000 a year into a tax-free savings account (TFSA), up from R36,000.  

The move follows a prolonged campaign from asset managers, personal finance bloggers and finfluencers who’ve clamoured for Treasury to increase the contribution limit – the first such loosening in half a decade.

When TFSAs were first introduced in 2015, the annual limit was R30000, which worked out to a nice round debit order of R2500 per month. When the ceiling was lifted to R36000 in 2021, the monthly contribution came to a neat R3000. Now R46000 divided by twelve takes you deep into decimal territory. But who cares about untidy numbers if there is wealth to be built? 
 
These savings vehicles are designed to let growth compound merrily as it attracts no taxes on dividends, capital gains, or interest.  
 
So if you reinvest those dividends and plough back that interest (both of which should happen automatically, by the way), and keep from making withdrawals, the long-term benefits should be substantial. And TFSAs are supposed to have a lower fee structure, so all your profits don’t get swallowed by intermediaries. 
 
TFSAs were first mooted back in the early 2010s. At a briefing then, Treasury officials displayed a few simple line graphs over a time scale of two decades. One of them represented monthly contriibutions leading to the life-time limit of R500,000.  
 
Back then, at R2500 per month, you would reach that milestone in about 17 years. And on some fairly conservative growth assumptions, Treasury’s pundits claimed that the total investment would be worth well north of R2m only twenty years later. It sounded like a pyramid scheme: For only R2500 per month you become a millionaire! 
 
But such is the power of compounding. Especially given how much of growth can leak away through taxes. 
 
Yet, at the same time, Treasury has not upped the life-time contribution limit, of R500,000. 
This means that some savers will hit it as soon as 2029.  
 
Still, TFSAs weren’t the only adjustment aimed at long term savings. 

“The limit to retirement fund deductions [will] be raised from R350,000 to R430,000, allowing individuals to invest more each year on a tax-free basis,” Godongwana announced in his budget speech. 
 
This ceiling has also been stuck in the same spot since 2016. Many high-income earners would have been frustrated the last decade at not being able to shuffle a bit more away for retirement (or from creditors). Obviously all in the interest of tax-optimisation. 
 
Now it’s up to investors to max these out, and let compounding do the work. 

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