Unit trusts: flexible and accessible
- No tax deduction on what you put in.
- Access any time. You can withdraw or switch without penalties or waiting periods.
- Taxed as you go. Interest is taxed at your marginal rate after an annual interest exemption. Local dividends have dividends tax withheld. Gains are subject to capital gains tax when you sell, after an annual exclusion.
- No limits on how much you invest or which funds you choose.
Best for goals in the next few years, emergency savings and money you may need before retirement.
Retirement annuities: tax relief, locked in
- Tax deduction on contributions, up to a set percentage of your taxable income or remuneration, within an annual cap.
- No tax inside the fund on interest, dividends or capital gains.
- Locked until 55, apart from the savings component under the two-pot system, which you can access once a year (taxed at your marginal rate).
- Regulation 28 limits on how much can sit in higher-risk assets such as equities and offshore investments.
Best for long-term retirement saving, especially if your marginal tax rate is high.
What happens at retirement
From your unit trusts, you can simply keep drawing as you need, paying tax on gains and income along the way.
From an RA, up to a third can be taken as cash, and a portion of retirement lump sums is tax-free over your lifetime. The rest must buy an annuity that pays you an income. If the total value is small enough, you can take it all in cash.
Why many people use both
It is rarely one or the other. An RA gives you the tax deduction and disciplined retirement saving, while unit trusts give you flexibility for goals along the way. A tax-free savings account adds a third option, with no tax on growth or withdrawals, within annual and lifetime contribution limits.
Read more in our Record of Advice on the various ways to invest, or see what an investment broker does.
Frequently asked questions.
Which grows faster, a unit trust or an RA?
If they hold the same funds, the investment growth is similar. The RA usually ends up ahead over the long term because of the tax deduction and the absence of tax inside the fund, but it is less flexible.
Can I move my unit trust into an RA?
Not directly, but you can sell unit trusts and contribute the proceeds to an RA. Selling may trigger capital gains tax, and the RA contribution may give you a deduction, so it is worth calculating first.
Can I take money out of my RA before 55?
Only from the savings component under the two-pot system, once a year and taxed at your marginal rate, or in specific circumstances such as disability or permanently leaving South Africa under the relevant rules.
Is a tax-free savings account better than both?
It does a different job. There is no deduction, but growth and withdrawals are tax-free within the annual and lifetime limits. Many investors use all three together.