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a4973 10-11-2019 03:15 PM

Hi BBCW, I'm going on 55 in Dec 19 & my wife trails me by 9 years. We have both met FRS and BHS. We don't have MA expenditure except for Shield plan and Eldershield premiums annually. I am aware of the SA shield and intend to capital repay my property and accrued interest to cpf OA. I don't know if I want to top up my RA to ERS though. What other options / strategies/ hacks can I perform? As I am getting out of maxigain, I do have 100k fund outside of the capital repayment amount. I'm hoping to employ the 100k to generate pocket money / passive income. My DBS multiplier is full.

BBCWatcher 10-11-2019 04:36 PM

Quote:

Originally Posted by a4973 (Post 123643712)
Hi BBCW, I'm going on 55 in Dec 19 & my wife trails me by 9 years. We have both met FRS and BHS. We don't have MA expenditure except for Shield plan and Eldershield premiums annually.

Awesome. A couple suggestions:

1. Keep an eye on CareShield Life to see if it makes sense to switch when it opens. It very well might.

2. MediSave at the Basic Healthcare Sum (BHS) is rather interesting. Couples can often play some interesting "games" with tax relief for cash top ups to MediSave. Let's suppose both spouses have room below the CPF Annual Limit. In that case, the spouse in the higher tax bracket should be the one making all MediSave-based payments for the whole household, then that spouse can swoop in with cash top ups immediately after each MediSave payment.

Quote:

I am aware of the SA shield and intend to capital repay my property and accrued interest to cpf OA. I don't know if I want to top up my RA to ERS though.
For what it's worth, I'm going to be making a RA top up to the ERS. Under the most pessimistic assumptions I can come up with that top up would yield 3-point-something percent per year, which is a damn fine yield for a government bond (which is what a Retirement Account effectively is).

Quote:

What other options / strategies/ hacks can I perform? As I am getting out of maxigain, I do have 100k fund outside of the capital repayment amount. I'm hoping to employ the 100k to generate pocket money / passive income. My DBS multiplier is full.
There's the Supplementary Retirement Scheme, of course. I think SRS can work pretty well for mid-to-late career individuals. If you don't have a SRS account already then you could consider just depositing $1 (or whatever the minimum is) before the end of this year (2019) since the earliest qualified withdrawal date is sometimes (depending on your age) based on the initial deposit year. ES3 (or G3B) and/or MBH is probably the best you can do with SRS funds.

What does the rest of your household portfolio look like, broadly speaking?

BBCWatcher 12-11-2019 11:31 AM

PMC Bank: Does India Even Have Deposit Insurance Now?
 
Here's something I don't understand, and I'm hoping somebody knows the answer.

India officially has deposit insurance: the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the Reserve Bank of India. DICGC insures deposits up to 100,000 Indian rupees (about US$1,400 as I write this) per depositor per institution. That's not enough in my view (and according to many other people), but that's what it is.

OK, now consider PMC Bank, a.k.a. the Punjab and Maharashtra Co-operative Bank. This bank has 137 branches, mostly in Maharashtra. PMC Bank made some bad and/or fraudulent loans, and it's possible, even likely, that the bank also committed accounting fraud. It's a mess.

On September 23 the RBI ordered a total withdrawal limit per PMC depositor of 1,000 rupees (~US$14), or a mere 1% of the deposit insurance limit. That wasn't a daily limit -- it was a TOTAL limit. Then the RBI raised the limit to 10,000 rupees two days later. Later it raised the withdrawal limit to 25,000 rupees, then to 40,000 rupees, and now (about 7 days ago as I write this) to 50,000 rupees.

But the deposit insurance limit is 100,000 rupees! Why bother having deposit insurance at all if it's not going to honored, if deposits are frozen for weeks, or now nearly 2 months? I just don't understand this. Since the Indian government is obviously not honoring its deposit insurance commitments even for a 137 branch co-operative bank, depositors in India now have a powerful incentive to withdraw every rupee from any bank, every bank that exhibits even the slightest chance of insolvency -- even on rumors. This is literally crazy (in regulatory terms at the very least). What the heck is going on?

Should we all be worried that India is on the cusp of a major national banking crisis, or am I overreacting?

FrostWurm 12-11-2019 12:42 PM

Quote:

Originally Posted by BBCWatcher (Post 123673570)
Here's something I don't understand, and I'm hoping somebody knows the answer.

India officially has deposit insurance: the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the Reserve Bank of India. DICGC insures deposits up to 100,000 Indian rupees (about US$1,400 as I write this) per depositor per institution. That's not enough in my view (and according to many other people), but that's what it is.

OK, now consider PMC Bank, a.k.a. the Punjab and Maharashtra Co-operative Bank. This bank has 137 branches, mostly in Maharashtra. PMC Bank made some bad and/or fraudulent loans, and it's possible, even likely, that the bank also committed accounting fraud. It's a mess.

On September 23 the RBI ordered a total withdrawal limit per PMC depositor of 1,000 rupees (~US$14), or a mere 1% of the deposit insurance limit. That wasn't a daily limit -- it was a TOTAL limit. Then the RBI raised the limit to 10,000 rupees two days later. Later it raised the withdrawal limit to 25,000 rupees, then to 40,000 rupees, and now (about 7 days ago as I write this) to 50,000 rupees.

But the deposit insurance limit is 100,000 rupees! Why bother having deposit insurance at all if it's not going to honored, if deposits are frozen for weeks, or now nearly 2 months? I just don't understand this. Since the Indian government is obviously not honoring its deposit insurance commitments even for a 137 branch co-operative bank, depositors in India now have a powerful incentive to withdraw every rupee from any bank, every bank that exhibits even the slightest chance of insolvency -- even on rumors. This is literally crazy (in regulatory terms at the very least). What the heck is going on?

Should we all be worried that India is on the cusp of a major national banking crisis, or am I overreacting?

A few things I have learnt from working with Indian companies (both state-owned and private).

1) Some decisions take time to implement because India is a very large country. Indians have accepted that long waits and delays are part of life.

2) Most of the population probably do not even follow the news of other parts of the country. Even if they do know about it, they do not think it is likely to affect them. I doubt many of them understand the concept of a bank run, considering that a large part of the population is still unbanked and many bank accounts were created only in the last decade.

3) Bureaucracy is massive. Even the selection of the CEO for state-owned companies is very rigid and time-consuming. By the time the CEO actually commences work, he will be gone in a year or two. Basically any process that involves governmental approval will face the same problem: ultra long wait-time.

4) The problem you mentioned goes further than banking. If you have heard about the Indian insurance industry (or if you google it), three out of the four state-owned direct insurers have been under the regulatory minimum solvency for a long time. Yet attempts to address this by the regulator/government have been fruitless. They are still incurring massive losses.

5) Any issue that goes to court is gonna take a sh*tload of time to even be heard. In many cases, witnesses have actually died before the trial even commenced. The wait is often more than 5 years; 10 years is not uncommon either. There is a huge judicial backlog waiting to be cleared.

6) Overall, India is a very unique country to me. Despite all of its shortcomings, some of which seem severe to a foreigner like me, they do not seem perturbed by it. Some way or another, a solution appears, often unconventional, to their problems. There is something mystical about the place and I strongly encourage anyone who is interested (even if mildly) to visit India and experience for yourself how they live.

a4973 12-11-2019 12:58 PM

Quote:

Originally Posted by BBCWatcher (Post 123644976)
Awesome. A couple suggestions:

2. MediSave at the Basic Healthcare Sum (BHS) is rather interesting. Couples can often play some interesting "games" with tax relief for cash top ups to MediSave. Let's suppose both spouses have room below the CPF Annual Limit. In that case, the spouse in the higher tax bracket should be the one making all MediSave-based payments for the whole household, then that spouse can swoop in with cash top ups immediately after each MediSave payment.

thanks BBCW, so does this mean the higher bracket spouse uses his / her MA funds to pay for all the family member's Shield Plan's premiums Medisave deductible portion & Eldershield premiums & then when there is a gap between that spouse's actual MA balance & the BHS of the year to top up MA with cash to enjoy tax benefits?

BBCWatcher 12-11-2019 04:14 PM

Quote:

Originally Posted by a4973 (Post 123674882)
thanks BBCW, so does this mean the higher bracket spouse uses his / her MA funds to pay for all the family member's Shield Plan's premiums Medisave deductible portion & Eldershield premiums & then when there is a gap between that spouse's actual MA balance & the BHS of the year to top up MA with cash to enjoy tax benefits?

That's the idea, yes.

If either spouse expects to hit the CPF Annual Limit, then that's not the right spouse to be paying expenses out of MediSave.

celtosaxon 12-11-2019 06:04 PM

BBCW,

Do you have any investment advice for SRS money held by a US person? My employer will be contributing around $30k annually starting next year and there are strictly no other options, so I am stuck with this. I know UT/ETF is off the table due to PFIC. I also read your other post that mentioned certain stocks could be considered PFICs like REITs, because of the way they are structured. FD seems pretty simple tax-wise, but interest rates are pathetic and promo FD doesn’t apply to SRS, according to the bank. Are there any good options in my situation?

I’m thinking my only options are FD or individual company stocks like DBS. Maybe SGS bonds, but the rates are not any better than FD at the moment. The bank told me they can sell some insurance products to US persons but I’m a little leery of those not knowing the potential tax & reporting consequences, not to mention fees (hidden or otherwise) that could be lurking in those.

BBCWatcher 15-11-2019 09:12 PM

Quote:

Originally Posted by celtosaxon (Post 123679716)
Do you have any investment advice for SRS money held by a US person? My employer will be contributing around $30k annually starting next year and there are strictly no other options, so I am stuck with this. I know UT/ETF is off the table due to PFIC.

Correct.

It's bizarre to me that the employer insists on SRS account deposits versus cash. There's no employer benefit so far as I'm aware, except to the extent relative wage elasticities accrue to the employer's benefit. But in your case it doesn't work.

Quote:

I also read your other post that mentioned certain stocks could be considered PFICs like REITs, because of the way they are structured.
The IRS would treat a lot of stocks listed in Singapore as PFICs. :(

Quote:

FD seems pretty simple tax-wise, but interest rates are pathetic and promo FD doesnít apply to SRS, according to the bank.
Singapore Government Securities of all types are allowed, though. Singapore's 6 month T-bill is yielding about 1.6%, for example. Singapore Savings Bonds are another option.

Quote:

Are there any good options in my situation?
I'm not sure they're good options, but hypothetically you could buy the bank stocks: DBS, UOB, and/or OCBC. Those really are financial institutions in character, and there's a special PFIC exception for banks anyway, so they seem to be "clean." They tend to kick off a lot of dividends, although they're non-qualified dividends (so, taxable at ordinary income tax rates). Occasionally they make opt-in scrip dividend offers, and I'd take all such offers since that doesn't seem to be a taxable event as I understand it. (Other things being equal the scrip dividends will be taxable later in the form of capital gains tax.)

Quote:

Iím thinking my only options are FD or individual company stocks like DBS. Maybe SGS bonds, but the rates are not any better than FD at the moment. The bank told me they can sell some insurance products to US persons but Iím a little leery of those not knowing the potential tax & reporting consequences, not to mention fees (hidden or otherwise) that could be lurking in those.
Many (not all) insurance products are OK from a tax point of view, but they're generally lousy deals if they're complex. Also, the tax calculations can be really complicated if it's an annuity. The simple, fixed deposit-like endowment plans that pop up every so often are probably OK, though, such as the one HSBC Insurance offered not too long ago (2.5% p.a. on a 3 year endowment plan). That's really simple: deposit S$X, get back S$X+S$Y three years later, pay income tax at ordinary rates on the S$Y when paid.

You could simply withdraw the funds, pay the Singapore income tax plus penalty, and then feed that foreign tax back as a Foreign Tax Credit (with the Foreign Earned Income Exclusion/Foreign Housing Exclusion adjustment, of course). I looked very quickly at the FTC rules, and it seems like the penalty could be counted. But I haven't looked too carefully, so please check that. The more taxable income you have above the FEIE/FHE (if you have), the lower your Singapore taxable income is, and/or the longer your time horizon, the more likely the tax math will end up at least decent enough to suck up the penalty then put these funds to better uses.

For what it's worth, I do two things: (1) for the SRS funds I foolishly deposited (back when I didn't think it through well enough), the bank stocks; (2) no more foolishly deposited funds. ;)

BBCWatcher 15-11-2019 09:26 PM

CPF Likely to Announce the 2020 Basic Healthcare Sum
 
I expect the Central Provident Fund Board will announce the Basic Healthcare Sum for 2020 sometime next week, probably on Monday, November 18. They'll post any such announcement here:

https://www.cpf.gov.sg/Members/News/.../news-releases

The 2018 BHS was $54,500, and for 2019 it's $57,200. That's an increase just shy of 5%. Thus a $60,000 BHS for 2020 would be right in line with percentage expectations -- and it's also a nice, tidy round number -- but we'll see. (If the government is too scared to increment the first digit for 2020, then it'll probably be $59,800.)

The Basic Healthcare Sum does not increase for members who are age 65 or older. If you are under age 65, if your MediSave Account is currently at the Basic Healthcare Sum, and if you expect to have room below the CPF Annual Limit in 2020, you may wish to consider a January MediSave top up for tax relief during that sometimes brief interval when there's a gap between the new BHS and your MediSave Account balance. MediSave interest doesn't stay in MediSave when you're at the BHS, so you could have this opportunity in this particular situation.

This year there's no need to announce the new Basic, Full, and Enhanced Retirement Sums for 2020 since they were already announced quite some ago. The 2020 Full Retirement Sum will be $181,000. (The BRS is 50% of that, and the ERS is 150% of that.) However, we have no information yet about the BRS/FRS/ERS beyond 2020. We'll see if the CPFB decides to reveal those figures for 2021 and beyond next week, but I doubt it.

celtosaxon 15-11-2019 11:21 PM

Thanks for the reply. Believe me, it is reassuring to read your sage advice.

My employer is very conservative and inflexible on matters like this. Besides, the vast majority of participants are non-US and they don’t like to make any exceptions.

When SRS first came out I decided against it after weighing the investment limitations and potential tax on half of the future balance. SRS is a peculiar animal given that you are essentially opting to be taxed on investment returns that would have otherwise gone tax free in Singapore. But it can be attractive for those who can spread it over 10 years while residing here. I wonder if those planning to retire in Malaysia have considered the tax consequences on their SRS withdrawals.

I’ve already accepted the eventual 7.5-11% tax as almost inevitable. I did a break-even analysis on paying the penalty and full tax to see what kind of investment returns would make it worth doing an early withdrawal, but the hurdle is too high versus any guaranteed returns out there. And who knows, 10 years from now, things could change.

BBCWatcher 16-11-2019 12:37 AM

Quote:

Originally Posted by celtosaxon (Post 123732151)
I did a break-even analysis on paying the penalty and full tax to see what kind of investment returns would make it worth doing an early withdrawal, but the hurdle is too high versus any guaranteed returns out there. And who knows, 10 years from now, things could change.

Did you factor in the additional Foreign Tax Credit (offset against U.S. income tax) you'd get today for taking the Singapore income tax and penalty hit today?

celtosaxon 16-11-2019 08:07 AM

That is a good one. I haven’t factored it in because it’s a wildcard. I just can’t be sure if I will have use for the additional FTC. So far I’ve managed to exclude, deduct and credit enough other stuff where FTC hasn’t been needed. It might this year but only because of a non-repeatable. However, it certainly could in the future. I will definitely keep that in mind. Honestly, I don’t know how you think of all this stuff! Thanks again.

Quote:

Originally Posted by BBCWatcher (Post 123732795)
Did you factor in the additional Foreign Tax Credit (offset against U.S. income tax) you'd get today for taking the Singapore income tax and penalty hit today?


ChinoGirl 19-11-2019 05:19 PM

Hi BBC Watcher, my Husband and I had met with a GE agent recently. We asked him for quotation based on 75% coverage of our monthly salary (before CPF contribution), and 90 vs 180 days.

The difference in the annual premium is only about 60 dollars (for each of us).

The agent had also suggested that we use OCBC GE credit card to pay for the premium. We get to enjoy 1% rebate, and also get to split the annual premium into 12 monthly payments.

Is spending an extra 5 dollars a month ok to reduce the waiting period from 180 to 90 days?

Would like to seek your opinion on it. Thank you!

BBCWatcher 19-11-2019 07:16 PM

Quote:

Originally Posted by celtosaxon (Post 123733979)
That is a good one. I havenít factored it in because itís a wildcard. I just canít be sure if I will have use for the additional FTC. So far Iíve managed to exclude, deduct and credit enough other stuff where FTC hasnít been needed. It might this year but only because of a non-repeatable. However, it certainly could in the future. I will definitely keep that in mind. Honestly, I donít know how you think of all this stuff! Thanks again.

Keep in mind that you can "bank" Foreign Tax Credits and spend them (in the same income category) up to one tax prior, in the current tax year, and up to 10 tax years into the future. You don't earn an investment return on banked FTCs, but you don't lose them either unless you find them impossible to spend down within a decade.

Quote:

Originally Posted by ChinoGirl (Post 123784723)
Hi BBC Watcher, my Husband and I had met with a GE agent recently. We asked him for quotation based on 75% coverage of our monthly salary (before CPF contribution), and 90 vs 180 days.

The difference in the annual premium is only about 60 dollars (for each of us).

The agent had also suggested that we use OCBC GE credit card to pay for the premium. We get to enjoy 1% rebate, and also get to split the annual premium into 12 monthly payments.

Is spending an extra 5 dollars a month ok to reduce the waiting period from 180 to 90 days?

Would like to seek your opinion on it. Thank you!

It's up to you, really. It shouldn't be necessary to insure for the shorter waiting period since this is really about insuring against lifetime (or at least long-term) income loss due to disability. Indeed, it'd be better to spend precious premium dollars ratcheting up your sum assured (increasing the monthly payout) as your salary increases.

celtosaxon 19-11-2019 08:43 PM

Quote:

Originally Posted by BBCWatcher (Post 123786654)
Keep in mind that you can "bank" Foreign Tax Credits and spend them (in the same income category) up to one tax prior, in the current tax year, and up to 10 tax years into the future. You don't earn an investment return on banked FTCs, but you don't lose them either unless you find them impossible to spend down within a decade.

I am aware of the FTC carry over. It can only be used as a credit against foreign earned income, it can’t be used against future earned income in the US, right? But interesting thought... if I were to run out of exclusions, deductions, credits and didn’t have enough FTC to fully offset my US tax, this could help to inflate my FTC.

Let me think though, the way it works... all foreign tax paid is averaged across all foreign earned income (essentially the effective tax rate) and then you only take credit for the portion of foreign income that was not otherwise excluded. That means, the additional tax paid to break the SRS kitty would not get credited dollar for dollar, it will be added to the pool, and so it would have to be substantial enough to move my effective rate upwards where it would help “close the gap” between my effective rate and my top US rate.

Am I thinking about that correctly?


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