How is a two-pot savings withdrawal taxed in South Africa?

Money you take from the savings component of the two-pot retirement system is added to your taxable income for the year and taxed at your marginal rate, between 18% and 45%, through a SARS tax directive. It is not taxed on the retirement lump-sum tables, and it gets no tax-free portion, no deductions and no exemptions. The fund applies for the directive, deducts the tax, and pays you the balance.

That single rule explains most of the surprise people feel when the payout is smaller than the amount they asked for. The withdrawal stacks on top of your salary or other income, so the rate that applies is the rate on your top rand, not a flat low rate.

How the two pots work

Since 1 September 2024, contributions to a retirement fund are split. One-third goes to the savings component, which you can access before retirement. Two-thirds goes to the retirement component, which stays locked to provide a pension or annuity when you retire. Anything you had saved before 1 September 2024 sits in a third bucket, the vested component, under the old rules. To open the savings component, a once-off seed amount of 10% of your vested value as at 31 August 2024, capped at R30,000, was moved across.

You can take from the savings component once per tax year, a minimum of R2,000 up to whatever is available. That is the part this article is about. A withdrawal from the retirement component before retirement is generally not allowed, and a retirement lump sum is taxed differently, on the retirement tables.

How the tax is worked out

SARS taxes a savings withdrawal at your marginal rate. In practice the fund requests a directive, SARS adds the withdrawal to your other taxable income for the year, works out the tax on the higher total, and the extra tax is what comes off the withdrawal. Because no rebate, exemption or tax-free slice is applied to the withdrawal itself, the rate you pay is set entirely by where the withdrawal lands on the normal tax table once it sits on top of your income.

If you owe SARS from a past year, an IT88L stop order can be attached to the directive, so part or all of the payout goes to that debt first.

A worked example

Take someone under 65 with taxable income of R360,000 for the 2026 year of assessment, who withdraws R30,000 from their savings component. The tax on the withdrawal is the difference between the tax on R390,000 and the tax on R360,000, both on the 2026 table.

Tax on R360,000 (second bracket, R237,101 to R370,500):

• R360,000 less R237,100 = R122,900
• R122,900 x 26% = R31,954
• R42,678 + R31,954 = R74,632
• Less the primary rebate of R17,235 = R57,397

Tax on R390,000 (third bracket, R370,501 to R512,800):

• R390,000 less R370,500 = R19,500
• R19,500 x 31% = R6,045
• R77,362 + R6,045 = R83,407
• Less the primary rebate of R17,235 = R66,172

So the R30,000 withdrawal costs R66,172 less R57,397, which is R8,775 in tax. The fund pays out R30,000 less R8,775 = R21,225, before any administration fee it charges. The effective rate on the withdrawal is R8,775 / R30,000, about 29.25%, because the money straddles the 26% and 31% bands. Someone whose income already sat in the 45% band would lose 45% of the same R30,000.

Why the payout can still feel short

The directive tax is correct, but it is not the end of the story. SARS taxes the withdrawal using your estimated position for the year. If your final assessment puts you in a higher band than the directive assumed, you can owe a little more on assessment; if lower, you can be refunded. Taking a savings withdrawal also reduces the capital that would have compounded to retirement, which is the larger long-run cost the tax figure does not show.

Work out the tax on your own withdrawal

The cleanest way to see the cost is to compute your tax with and without the withdrawal. Our Basic income tax and PAYE calculator applies the 2026 SARS table and rebate, so you can run both figures and read off the difference. For how money taken at retirement is taxed instead, see our guide to tax on a retirement or provident fund withdrawal. Our explainers on tax on pension income for retirees and income tax brackets and rebates cover the tables the directive uses.

SARS sources:

• https://www.sars.gov.za/two-pot-retirement-system/
• https://www.sars.gov.za/latest-news/tax-directives-enhancements-and-tax-implications-of-the-two-pot-retirement-system/
• https://www.sars.gov.za/media-release/tax-implications-of-withdrawing-from-two-pot-retirement-system/
• https://www.sars.gov.za/tax-rates/income-tax/rates-of-tax-for-individuals/