Before the year ends, here’s a gentle reminder on tax saving for your next year’s tax relief.
(1) To contribute to your Supplementary Retirement Scheme (SRS) account
(2) To top-ups to our CPF Special Account (or Retirement Account if we are above 55) via the Retirement Sum Topping Up (RSTU) Scheme
For those contributing to their CPF Special Account (SA) via the RSTU scheme, we only receive dollar-for-dollar tax deductions on the first $8,000 each year. We can also receive up to another $8,000 for contributing to our loved one’s Special Account via the RSTU. We can always choose to make further top-ups to our Special Account or Retirement Account, up to the Full Retirement Sum (FRS), but will not receive any tax relief beyond the first $8,000.
The SRS gives us a dollar-for-dollar tax deduction on top-ups of up to $15,300 (and $35,700 for foreigners) a year. This is also the maximum we can top-up to our SRS account each year as well.
Besides thinking about taxes when we are making our top-ups, we also need to consider the tax implications when withdrawing our funds to use in retirement.
In our retirement, we will withdraw our CPF Special Account (or Retirement Account) top-ups via the CPF LIFE scheme. These monthly payouts will not be subject to taxes.
However, we have to pay taxes on the withdrawals of our SRS savings after our statutory retirement age (currently 63-years-old, but will rise to 65 by about 2030). We get a 50% tax concession, which means that we only pay taxes on 50% of our SRS withdrawals. For example, if we withdraw $40,000 in the year, we will have to pay taxes on only $20,000 – and we may end up not paying any tax if that’s our only taxable income in the year.
Of course, there is a risk that we build other taxable income such as investment property rentals for our retirement and may end up paying taxes as well.
Another constraint for the SRS is that we have to make withdrawals within a 10-year period. This means if we have more than $400,000 in our SRS account at the point we start making withdrawals, we may end up paying some income tax.
When we make RSTU top-ups to our CPF Special Account, our top-ups start earning a minimum of 4% per annum. This means we start earning a relatively decent interest rate from the moment we make a CPF top-up.
While we can invest our CPF Special Account monies, we cannot invest the portion that comes through topping up. This means, if we want the flexibility of investing in stocks or other investments, we may want to consider topping up our SRS account instead.
On the other hand, when we make top-ups to our SRS account, our funds will simply earn a negligible interest rate provided by the bank. This means we must invest our SRS top-up monies in order to earn a better return.
Reaping the joy of adopting a cause as a family, or a group of friends and saving on taxes would be a nice way to end the year strong. What a win win situation! So drop me a Whatsapp message to find out more about tax savings, how to invest SRS monies or just to chat and we will be more than happy to help.
Your relationship is important to me, and hope to strengthen it in the coming year. Best Christmas wishes and a prosperous 2023 New Year go out to you and your family.
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
I am a wealth management coach who encourages and motivates women, individuals and families seeking financial stability and freedom for their future. I work with clients to create personalized insurances and investment strategies to achieve their objectives. (Refer to my clients testimonials on their experiences)
I have more than 20 years experience in the financial industry and have worked in various international financial institutions in different capacities. A few years ago, I made a switch from Private Banking to become a financial advisory manager at Financial Alliance.
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