CPF SA Shielding hack - RIP (Obsolete)

[dork32]

oops...that's also blocked. if SA is above FRS, any other way (be it OA or Cash) to pump into SA either before 55 or after 55?

it is very difficult to get money into sa after 55. that is why we are so interested in shielding.

 

[dao]

if you have 40k, then it is a total waste of time to shield

I meant, after shielded, 40K is left in the SA. That's the amount that cannot be shielded.

 

[BrandonnC]

Would like to seek quick advice here.

I would like to shield my SA near my BD, by moving all SA out (leaving $40k) into a short-term investment.
Once reached 55, amount from OA (and $40k) will be deducted to form RA (FRS).
I would like to top up to ERS with cash (say, with about $90+k for this year).
I then release the shield with all invested sum back to SA.

I would like to ask:

- Does topping up to ERS using cash gives me a tax deduction for 2024 (similar to the SRS route)? If so, do I still need to put into SRS the difference in amount (minus the top up) to match a total of $13.5k for 2024?​

- I should think topping up with cash is better than using OA (to be done before I release the shield), as money transferred from OA is not tax deductible. Am i right?​

​

Thanks.​

 

[reddevil0728]

Would like to seek quick advice here.

I would like to shield my SA near my BD, by moving all SA out (leaving $40k) into a short-term investment.
Once reached 55, amount from OA (and $40k) will be deducted to form RA (FRS).
I would like to top up to ERS with cash (say, with about $90+k for this year).
I then release the shield with all invested sum back to SA.

btw note that the amount shielded does not increase the amount you can top-up. the amount shielded count towards your max.

I would like to ask:

- Does topping up to ERS using cash gives me a tax deduction for 2024 (similar to the SRS route)? If so, do I still need to put into SRS the difference in amount (minus the top up) to match a total of $13.5k for 2024?​

amount above FRS not tax deductible.

up2u whether you want to top up SRS? is for diff purpose

- I should think topping up with cash is better than using OA (to be done before I release the shield), as money transferred from OA is not tax deductible. Am i right?​

​

Thanks.​

see above

 

[BBCWatcher]

- Does topping up to ERS using cash gives me a tax deduction for 2024 (similar to the SRS route)?

In the scenario you've outlined (your Retirement Account is funded to the Full Retirement Sum using $40K from your Special Account and the remainder of the FRS from your Ordinary Account) there is no tax relief available for top ups to your Retirement Account. Your RA will already be at the FRS before the cash top up. Top ups above the FRS don't qualify for tax relief.

Hypothetically you could also "shield" OA, and that doesn't really cost anything right now (in fact it's a money maker) since 6 month T-bills and OCBC's fixed deposit are better than OA's 2.5% interest. (With unit trust-based OA shielding there is a cost in terms of lost OA interest.) If you do that your RA will end up with about $60,000 ($40,000 from SA and $20,000 from OA). Then you have plenty of room for a cash top up to the ERS, and (up to) the first $8,000 will qualify for tax relief since your RA is starting below the FRS.

You could partially shield OA to leave enough room below the FRS for your $8,000 of tax relief. If your RA ends up at FRS-$8,000 then you could swoop in with a cash top up of $8,000. Then (optionally) lower the OA shield, transfer OA dollars to your RA (up to the ERS), then finally lower the SA shield.

Or in yet another variation you could partially shield OA using 6 month T-bills such that your new RA is funded to the FRS-$8,000, use cash to top up your RA to the ERS (with the first $8,000 qualifying for tax relief), then close your CPF Investment Account and transfer your T-bills to your CDP account in order to withdraw the OA dollars you shielded (and, when the T-bills mature, replenish the unrestricted cash you used for your RA top up).

Lots of options, really. It depends on what your priorities are.

If so, do I still need to put into SRS the difference in amount (minus the top up) to match a total of $13.5k for 2024?

SRS tax relief is entirely separate. You can deposit up to $15,300 per year into a SRS account with tax relief. The only limits associated with that tax relief are: (1) the overall $80,000 tax relief limit, and (2) whether you have any taxable income left (after tax reliefs).

- I should think topping up with cash is better than using OA (to be done before I release the shield), as money transferred from OA is not tax deductible. Am i right?​

In the current interest rate environment I'd be tempted to transfer OA dollars to RA (up to the ERS) while the SA shield is still in place. That's especially true if you have the ability to repay OA dollars (plus accrued interest), i.e. you have substantial opportunities to inject more funds into OA in the future. But it's up to you, and you also have the option to use a combination of cash and OA while the SA shield is still intact.

 

[dao]

Hypothetically you could also "shield" OA, and that doesn't really cost anything right now (in fact it's a money maker) since 6 month T-bills and OCBC's fixed deposit are better than OA's 2.5% interest. (With unit trust-based OA shielding there is a cost in terms of lost OA interest.) If you do that your RA will end up with about $60,000 ($40,000 from SA and $20,000 from OA). Then you have plenty of room for a cash top up to the ERS, and (up to) the first $8,000 will qualify for tax relief since your RA is starting below the FRS.

With just $60K in RA, which is below BRS, do I need to pledge my property?

Or in yet another variation you could partially shield OA using 6 month T-bills such that your new RA is funded to the FRS-$8,000, use cash to top up your RA to the ERS (with the first $8,000 qualifying for tax relief), then close your CPF Investment Account and transfer your T-bills to your CDP account in order to withdraw the OA dollars you shielded (and, when the T-bills mature, replenish the unrestricted cash you used for your RA top up).

If I close my CPF Investment Account, do I need to initiate any transfer of my T-bills to my CDP account? Is this automatically or manual done? What about the shares in my CPF Investment Account? Do I also need to initiate the transfer to my CDP account?

 

[BBCWatcher]

With just $60K in RA, which is below BRS, do I need to pledge my property?

A property pledge/charge only becomes relevant if you want to withdraw funds such that your RA ends up below the Full Retirement Sum. You can leave RA at $60,000 if you wish. It just doesn’t make much sense to do that when OA earns 2.5%, RA earns 4.0%, and you can’t withdraw anything.

If I close my CPF Investment Account, do I need to initiate any transfer of my T-bills to my CDP account?

Yes, you have to work with your CPF Investment Account bank to transfer the securities to your CDP account. But you won’t be able to do this unless your RA is at least decently funded.

 

[dao]

"decently funded" means FRS? With just RA at $60,000, I cannot close my CPF Investment Account bank to transfer the securities/t-bills to my CDP account?

 

[BBCWatcher]

"decently funded" means FRS?

"Decently funded" generally means at least the Full Retirement Sum, although it could mean a lesser amount if you have a property pledge/charge in place.

With just RA at $60,000, I cannot close my CPF Investment Account bank to transfer the securities/t-bills to my CDP account?

That's my understanding. Unless your OA+SA+RA is already enough to meet the FRS (or BRS with property pledge/charge). I don't think anyone has really tested this little corner of the CPF ruleset — not that I've read in this forum anyway — since the vast majority of people doing this are likely to have decently or better funded RAs.

 

[dao]

T-bills currently work decently, but at some point (perhaps very soon) T-bill rates are going to fall. When they fall T-bills will not work well for SA shielding.

Many of my friends jump to use T-bills to do SA shielding. But, unless T-bills is above 4%, you will loss out for 6 months when the interest is less than SA 4%.

And there is addition 1-2 month of no SA 4% interest when the fund is withdrawn/returned from/to CPF.

Isn't it better to use short-term bond funds, like Nikko AM Shenton Short Term Bond Fund, for a few days within the birthday month a better choice? You will loss out 1 month of SA 4% (same as T-bills method) for withdrawal/returning of funds from/to CPF. But that is it. Same as T-bills method. You don't loss anything for the 6 months in T-bills.

 

[BBCWatcher]

Many of my friends jump to use T-bills to do SA shielding. But, unless T-bills is above 4%, you will loss out for 6 months when the interest is less than SA 4%.

Yes, but note that the per annum yield of a T-bill is slightly higher than its cut-off yield. So be sure to make that adjustment if you want to understand the precise cost.

And there is addition 1-2 month of no SA 4% interest when the fund is withdrawn/returned from/to CPF.

It's really 1 month. You don't have to choose the rare T-bills with 2 month interest losses. Since T-bills are auctioned every 2 weeks there are lots of 6 month T-bills straddling your 55th birthday that only have 1 month losses. In other words, most 6 month T-bills involve losing SA interest for 7 months on those dollars (in exchange for the 6 months of T-bill interest). Just skip the very few that involve losing 8 months of SA interest, that's all.

Isn't it better to use short-term bond funds, like Nikko AM Shenton Short Term Bond Fund, for a few days within the birthday month a better choice? You will loss out 1 month of SA 4% (same as T-bills method) for withdrawal/returning of funds from/to CPF. But that is it. Same as T-bills method. You don't loss anything for the 6 months in T-bills.

If T-bill yields are much lower than the SA interest rate then yes, a short-term bond fund can make a great deal of sense as a SA shielding vehicle. But there are some CPF members that'll need to lose 2 months of SA interest when they shield using a short-term bond fund. If their 55th birthday is uncomfortably close to the beginning or end of the calendar month then a 2 month SA interest loss is probably unavoidable. 6 month T-bills (most of them) don't have that particular issue. Also, I'm not sure whether that specific bond fund you name is the best available option. Check the list. The "best" fund for these purposes invests in the shortest term investment grade Singapore dollar denominated bonds and won't have an ill timed dividend distribution. The fund's expense ratio really doesn't matter except as a tie breaker since you'll be holding it for such a short period.

Note that you can combine shielding techniques, and you might want to anyway since you can't really mop up the last few remaining SA dollars above S$40,000 and/or the last compulsory monthly contribution prior to your 55th birthday if the T-bill auction schedule isn't "just right." Just make sure you leave at least the minimum amount required to buy a bond unit trust (S$1,000 typically).

Another possible approach is to head over to DBS's main branch at MBFC (Downtown MRT station) before your 55th birthday and ask if they have any Singapore Government Securities (T-bills or other SGSes) that mature shortly after your 55th birthday. The banker will need to contact their bond trading desk to ask. If they do, and if they're willing to sell you that SGS at par all-in (or even at a discount, and wouldn't that be nice), then it could work beautifully. FWIW I read a blog article (that I can't find now) that described how one person did this successfully. So it seems possible, although you'll probably have to find a banker who understands what you're trying to do. OCBC and UOB might be able to handle it too.

 

[reddevil0728]

Many of my friends jump to use T-bills to do SA shielding. But, unless T-bills is above 4%, you will loss out for 6 months when the interest is less than SA 4%.

And there is addition 1-2 month of no SA 4% interest when the fund is withdrawn/returned from/to CPF.

Isn't it better to use short-term bond funds, like Nikko AM Shenton Short Term Bond Fund, for a few days within the birthday month a better choice? You will loss out 1 month of SA 4% (same as T-bills method) for withdrawal/returning of funds from/to CPF. But that is it. Same as T-bills method. You don't loss anything for the 6 months in T-bills.

Some ppl may prefer certainty of how much interest they might potentially lose vs lost of capital.

 

[dao]

Yes, but note that the per annum yield of a T-bill is slightly higher than its cut-off yield. So be sure to make that adjustment if you want to understand the precise cost.

So, to get the equivalent SA 4% pa, what should be the cut-off yield? 3.94-3.95%?

 

[jtec14]

So, to get the equivalent SA 4% pa, what should be the cut-off yield? 3.94-3.95%?

The cut-off yield mentioned in the below article by dbs might help.

https://www.dbs.com.sg/personal/articles/nav/investing/investing-in-t-bills

 

[dork32]

So, to get the equivalent SA 4% pa, what should be the cut-off yield? 3.94-3.95%?

you lose 1 extra month of interest much higher than that

 

[westtraveller]

Tldr.. assuming max utilising of shielding.. what’s the max gain a person can receive from this exercise?

 

[BBCWatcher]

Tldr.. assuming max utilising of shielding.. what’s the max gain a person can receive from this exercise?

It's hard to say. It's the value of 1.5 percentage points more interest on shielded SA dollars for as long as they're kept in SA, less the cost of shielding. That could potentially be 1.5% compounded for 45+ years on hundreds of thousands of dollars.

 

[KeytoFreedom]

can we transfer from CPF SA to T Bills via internet banking a couple of months before age 55? is quite a safe option, with certainty of interest return and capital protected, correct?


Read HWZ Forum Rules!

 

[reddevil0728]

Can shield using tbill but note that it will definitely be a loss as tbill interest is below SA's 4% and you lose CPF interest. You need to be careful to pick the 6 mths tbills that has 7 mths interest loss and not those with 8 mths interest loss.

Still worth the effort to shield though if your SA amount is large and you will not need to touch it for many years after 55.

If your birthday is not at beginning or end of the mth, shielding by short term bond is an alternative.

i think one needs to note that short term bond risk is more undefined vis-a-vis t-bill.

some may prefer certainty for what's already a "shield" vis-a-vis the relatively small loss in interest

 

[reddevil0728]

Yes I know some people prefer that kind of certainty.

But shielding by tbill is a definite loss. If tbills rates drop by the time reach 55th birthday, the loss will be wider.

Shielding by short term bond if keep it within a week might be profit might be loss. And SA is returned quickly and start earning 4% next mth.

Losing 1 mth cpf interest is common to both tbill and short term bond.

My friend did SA shield recently. As her birthday is at beginning of the month, tbill is better as short term bond would lose 2 mths cpf interest.

For analysis sake I still did a calculation if she had done shield using short term bond (purchase one week before birthday and sell on birthday).

Shield by tbill : tbill interest vs cpf interest loss = loss of $1127.25

Shield by short term bond : Profit of $461.34
With 2 mths CPF interest loss, nett loss $1365.33
But if her birthday had been like mid month with 1 mth CPF int loss, nett loss is $452.

yes but if looking at it more holistically,

1 is a loss in interest vs a potential loss in capital.

some ppl might still forgo the loss in interest in exchange for certainty on capital regardless of how long.