A member earning R380,000 a year sits comfortably in the 31% tax bracket. She pulls R60,000 from her savings pot to cover a car repair and school fees, and suddenly a chunk of that withdrawal gets taxed at 36%, not 31%. This is the two pot withdrawal tax bracket pushed into higher bracket problem, and it catches out thousands of South Africans every month who assume their withdrawal will be taxed at their “normal” rate.
It won’t be. SARS adds your withdrawal to your total taxable income for the year, and if that pushes you over a bracket threshold, a portion of your money gets taxed at the higher rate. This article walks through exactly how that happens, what it costs you in real Rand terms, and how to check your own exposure before you apply for a withdrawal through your fund administrator, Old Mutual, Sanlam, Discovery, Momentum, or whichever provider runs your retirement fund.
Since the two pot retirement system came into effect on 1 September 2024, savings pot withdrawals have become one of the most common reasons ordinary fund members find themselves owing SARS more than they expected. Knowing how the maths works, and where the bracket lines sit for the 2025/26 tax year, means you can decide whether a withdrawal is actually worth it, or whether it’s better to leave the money where it is.
Why the Two Pot Withdrawal Tax Bracket Issue Exists in the First Place
Under the two pot system, your retirement contributions from 1 September 2024 onward get split into two parts. One third goes into your savings pot, which you can access once a tax year while you’re still working. Two thirds goes into your retirement pot, which stays locked until retirement. There’s also a vested pot, holding whatever you’d already saved before the system started, governed by the old pre-retirement withdrawal rules.
The savings pot withdrawal isn’t taxed as a separate, isolated amount the way a lump sum at retirement is. Instead, SARS treats it as ordinary income and adds it to everything else you earned in that tax year. Your salary, your bonus, any rental income, all of it gets combined with the withdrawal amount, and SARS then works out your tax liability on the total using the normal PAYE tax tables. This is the mechanism behind the two pot withdrawal tax bracket pushed into higher bracket problem. If your salary alone already sits near the top of a bracket, adding a withdrawal on top tips part of that money into the next bracket up, and that portion gets taxed at the higher marginal rate.
This is different from how retirement pot and vested pot withdrawals work at actual retirement, resignation, or retrenchment, where SARS applies the retirement fund lump sum tax tables instead, which have their own thresholds and a tax-free portion. Confusing the two systems is one of the most common mistakes fund members make, and we’ll get to that shortly.
The 2025/26 Tax Brackets You Need to Know
For the 2025/26 tax year, SARS did not adjust the individual tax brackets for inflation, so the same table applies as the previous year. Here’s how it breaks down.
| Taxable Income | Tax Rate on That Portion | |
| R1 to R237,100 | 18% | |
| R237,101 to R370,500 | 26% | |
| R370,501 to R512,800 | 31% | |
| R512,801 to R673,000 | 36% | |
| R673,001 to R857,900 | 39% | |
| R857,901 to R1,817,000 | 41% | |
| Above R1,817,000 | 45% |
The tax-free threshold sits at R95,750 for anyone under 65. If your total taxable income for the year, salary plus withdrawal plus anything else, stays under that figure, you won’t pay income tax at all. For most working South Africans, though, the concern isn’t the threshold. It’s what happens when a withdrawal nudges your income from one bracket into the next.
In practice, what most fund members find is that they don’t check their own numbers before applying. They see the words “tax-free” attached to older lump sum rules and assume something similar applies here. It doesn’t. Every Rand you withdraw from your savings pot in a tax year gets added straight to your taxable income, no tax-free portion, no exemption.
Working Through a Real Example
Say you earn a taxable salary of R350,000 a year. On its own, that sits in the 26% bracket, since it’s below R370,500. Now say you withdraw R40,000 from your savings pot to cover an emergency.
Your new taxable income for the year becomes R390,000. That crosses the R370,500 threshold into the 31% bracket. It doesn’t mean your entire income now gets taxed at 31%. South Africa uses a progressive system, so only the portion of income above R370,500 is taxed at the higher rate. In this case, R19,500 of your withdrawal falls into the 31% bracket instead of the 26% bracket you’d normally expect, costing you an extra R975 in tax on that slice alone, on top of the tax you’d already pay on the rest of the withdrawal at 26%.
Now take a bigger example. A fund member earning R500,000 a year sits in the 31% bracket, just under the R512,800 ceiling. She withdraws R60,000 from her savings pot. Her income for the year becomes R560,000. The first R12,800 of the withdrawal still falls at 31%, but the remaining R47,200 gets pushed into the 36% bracket. That’s an extra R2,360 in tax purely because of the bracket jump, over and above the tax she’d already have paid at her normal rate.
This is exactly why the two pot withdrawal tax bracket pushed into higher bracket effect matters so much when you’re deciding how much to take out. Fund administrators at Capitec, Nedbank, ABSA, Standard Bank, and FNB will process the withdrawal request, but none of them will tell you upfront exactly where your bracket line sits for the year. That calculation is on you, or your tax practitioner, to work out before you submit the application.
How SARS Actually Collects the Tax
You don’t pay this tax when you file your annual return months later. SARS issues what’s called a tax directive the moment your fund administrator applies for the withdrawal on your behalf. The directive tells the fund exactly how much tax to deduct before paying out the balance to you. This means the amount that lands in your bank account is already net of tax, calculated using your full expected taxable income for the year, including your salary as reported by your employer.
If you owe money to SARS, for example unpaid tax from a previous year, outstanding provisional tax, or student loan debt through NSFAS in some cases, SARS can also instruct the fund to deduct that from your withdrawal before you see a cent. This catches a lot of people off guard when the payout is smaller than they calculated.
A common situation we see is a fund member expecting the full R30,000 they requested, only to receive R19,000 after tax and outstanding debt deductions. The tax directive process is automated and based on SARS’s records, so if your employer hasn’t submitted your latest earnings data, the directive might use outdated figures, which can mean an over deduction that you’d need to claim back when you file your return.
The Common Mistake: Treating It Like a Retirement Lump Sum
This is where most confusion happens. The retirement lump sum tax tables, the ones many South Africans have heard about, with the first R550,000 taxed at 0%, apply only when you retire, resign, get retrenched, or emigrate and access your retirement pot or vested pot. They do not apply to savings pot withdrawals taken while you’re still employed and still contributing to the fund.
Savings pot withdrawals get taxed entirely differently, at your marginal rate as ordinary income, with no tax-free portion at all. Someone who withdraws R100,000 from their savings pot thinking the first chunk is tax-free is going to be disappointed when they see the actual amount deposited. The Revenue Laws Amendment Act and subsequent SARS interpretation notes on the two pot system are explicit about this distinction, and National Treasury built it this way deliberately, to discourage people from treating their savings pot as a regular source of extra income rather than a genuine emergency fund.
Savings Pot vs Retirement Pot: Quick Comparison
| Feature | Savings Pot | Retirement Pot |
| Access while employed | Once per tax year | Not accessible until retirement |
| Tax treatment | Marginal tax rate, added to income | Retirement lump sum tax tables at retirement |
| Tax-free portion | None | First R550,000 tax-free (at retirement) |
| Withdrawal minimum | R2,000 | Not applicable before retirement |
| Purpose | Emergency access | Long-term retirement income |
How to Check Your Own Bracket Exposure Before You Withdraw
Before applying for a savings pot withdrawal, add up your expected total taxable income for the tax year, including your salary, bonus, overtime, and any other income sources. Then add the withdrawal amount you’re considering. Compare that combined figure against the bracket table above and see whether it crosses a threshold.
If it does, you can decide whether to withdraw a smaller amount to stay under the threshold, or accept the higher tax on the portion that spills over because you genuinely need the full amount. Either way, you’re making an informed decision rather than being surprised by a smaller payout than expected. A registered tax practitioner or your fund’s call centre can usually run this calculation for you if you’re unsure of the exact figures.
Frequently Asked Questions
Does a two pot savings withdrawal count as taxable income?
Yes. SARS adds your savings pot withdrawal to your total taxable income for that tax year and taxes it at your marginal rate, exactly like additional salary. There is no separate tax-free portion for savings pot withdrawals, unlike retirement pot withdrawals taken at retirement.
Can a savings pot withdrawal really push me into a higher tax bracket?
Yes, if the withdrawal amount, combined with your normal income, crosses one of the SARS bracket thresholds. Only the portion of income above that threshold gets taxed at the higher rate, not your entire income, but that portion still costs you more than you’d pay at your usual rate.
How much tax will SARS take from my two pot withdrawal?
SARS issues a tax directive to your fund administrator based on your expected annual taxable income, and the fund deducts that amount before paying you out. The exact figure depends on your salary, any other income, and outstanding debts owed to SARS.
Is it better to withdraw a smaller amount to avoid a higher tax bracket?
Often yes, if you’re close to a bracket threshold and don’t urgently need the full amount. Withdrawing just enough to stay under the next threshold can save you a meaningful amount in tax, though this depends entirely on your specific income situation for the year.
Read more: Two pot system if employer goes bankrupt
If you’re thinking about tapping into your savings pot, work out your full taxable income for the year first, not just your salary. That single step tells you whether the withdrawal will land you a tax bill you didn’t budget for, or whether it’s a straightforward transaction at your normal rate. Talk to your fund administrator or a tax practitioner before you submit the request, especially if your income sits close to one of the bracket lines above. If you’re weighing whether to withdraw at all, understanding the tax implications first will save you money, see our breakdown of two pot withdrawal tax rates and how they’re calculated.
This article is for informational purposes only and does not constitute financial advice. Tax rules and fund regulations may change. Speak to a registered financial advisor or visit sars.gov.za for guidance specific to your situation.
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