Treasury lifts TFSA limit to R46,000 

Savers and investors have finance minister Enoch Godongwana to thank for the very wobbly amount of R3,833.33 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 R30,000, which worked out to a nice round debit order of R2,500 per month. When the ceiling was lifted to R36,000 in 2021, the monthly contribution came to a neat R3,000. Now R46,000 divided by 12 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 contributions leading to the lifetime limit of R500,000.

The power of compounding

Back then, at R2,500 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 20 years later. It sounded like a pyramid scheme: for only R2,500 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 lifetime 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 past decade at not being able to shuffle a bit more away for retirement (or from creditors). Obviously all in the interest of tax-optimisation.

Hayley Parry, co-founder of Cumulate and head of financial education at Worth, says that if households use tax stability to reduce debt, take advantage of tax-free savings vehicles, plan for fuel-driven inflation and make intentional consumption decisions, “then this can be a year of consolidation and resilience. If not, it will simply feel like another year of financial pressure.”

The adjustments to personal income tax brackets and rebates “give consumers breathing room – but breathing room is not the same as financial progress. The smart move now is to use this stability to reduce debt or build up your emergency fund; not expand lifestyle costs.”

Ultimately, it’s up to investors to max out these small gifts from the taxman, and let compounding do the work.

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