Five changes to CPF rules

[andyhtc]

I just found a piece of not so good news. MA top-up can be refunded if the mandatory contribution is exceeded.

Top-up limit to your MediSave Account and Basic Healthcare Sum (BHS)

The maximum amount you can top up is the difference between the CPF Annual Limit of $37,740 and the mandatory CPF contributions made for the calendar year.

For top-ups to MediSave Account, the amount is subject to the limit on your BHS. Once your BHS has been reached, no further top-ups can be made to your MediSave Account.

Do remember to consider your mandatory CPF contributions which you will be receiving for the calendar year, before making top-ups. If the total mandatory CPF contributions and top-ups exceed the CPF Annual Limit in the calendar year, any excess top-ups will be refunded without interest.

https://www.cpf.gov.sg/member/growing-your-savings/saving-more-with-cpf/top-up-your-medisave-savings

 

[andyhtc]

On the 1st day of the new year, there should be an upward revision of the MA limit.

I intend to top up to the new limit to enjoy tax relief i.e. I get the first bite of the cherry before my company tops up my MA further

I take back this part. My company's mandatory contribution will exceed the annual limit.

 

[Okenba]

I just found a piece of not so good news. MA top-up can be refunded if the mandatory contribution is exceeded.

Top-up limit to your MediSave Account and Basic Healthcare Sum (BHS)

The maximum amount you can top up is the difference between the CPF Annual Limit of $37,740 and the mandatory CPF contributions made for the calendar year.

For top-ups to MediSave Account, the amount is subject to the limit on your BHS. Once your BHS has been reached, no further top-ups can be made to your MediSave Account.

Do remember to consider your mandatory CPF contributions which you will be receiving for the calendar year, before making top-ups. If the total mandatory CPF contributions and top-ups exceed the CPF Annual Limit in the calendar year, any excess top-ups will be refunded without interest.

https://www.cpf.gov.sg/member/growing-your-savings/saving-more-with-cpf/top-up-your-medisave-savings

This is true for this year. So if your CPF contributions are already maxed out, no real point in topping-up MA this year.
It will not be true next year, as MA top-ups will no longer have that restriction. The new rule is especially helpful to those who already have SA at FRS. Now they can still get Tax Relief via MA top-ups in Jan (when BHS increases) and whenever their MA is used (healthcare payments, insurance, careshield, etc

 

[andyhtc]

This is true for this year. So if your CPF contributions are already maxed out, no real point in topping-up MA this year.
It will not be true next year, as MA top-ups will no longer have that restriction. The new rule is especially helpful to those who already have SA at FRS. Now they can still get Tax Relief via MA top-ups in Jan (when BHS increases) and whenever their MA is used (healthcare payments, insurance, careshield, etc

I'm quite confused now. CPF never update its website and say there will be no limit next year

 

[Okenba]

I'm quite confused now. CPF never update its website and say there will be no limit next year

https://www.cpf.gov.sg/member/infoh...ouncements/cpf-amendment-bill-highlights-2021
Simplification of top-ups to MediSave
Starting 1 January 2022, the amount members can top up to MediSave will be the difference between their Basic Healthcare Sum (BHS) and their current MediSave balances. Currently, members have to consider the CPF Annual Limit and BHS for top-ups to MediSave. With the simplification, there is no longer a need to consider the CPF Annual Limit which is typically made known only at the end of each year.

 

[DriftKing]

I'm quite confused now. CPF never update its website and say there will be no limit next year

https://www.cpf.gov.sg/member/infoh...ouncements/cpf-amendment-bill-highlights-2021
Simplification of top-ups to MediSave
Starting 1 January 2022, the amount members can top up to MediSave will be the difference between their Basic Healthcare Sum (BHS) and their current MediSave balances. Currently, members have to consider the CPF Annual Limit and BHS for top-ups to MediSave. With the simplification, there is no longer a need to consider the CPF Annual Limit which is typically made known only at the end of each year.

That was my purpose of clarifying the before and after changes in relation to MA top-ups. I would assume there's plenty folks here have hit the annual contribution limit, but yet BHS has not be reached.

 

[sweetbearfire]

I'm quite confused now. CPF never update its website and say there will be no limit next year

This article should help clarify your doubts.

https://www.heartlandboy.com/significant-changes-cpf-medisave-cash-top-ups-tax-relief-strategy/

 

[chiokcc]

The layout of the CPF website has changed .... need to spend some time to re-learn navigating ....

 

[BBCWatcher]

I take back this part. My company's mandatory contribution will exceed the annual limit.

That can be OK, and you may want to exceed the CPF Annual Limit this year (2021). I'll explain why in a moment....

This is true for this year. So if your CPF contributions are already maxed out, no real point in topping-up MA this year.

There is a point, this year (2021) as a one-time maneuver....

Let's suppose your MA is near the BHS and you expect you'll reach the CPF Annual Limit in 2021. I'll pick some specific numbers:

MA: $60,000
SA: $190,000

OK, so you can't top up your SA for tax relief, but you could add $3,000 to your MA. "But BBCWatcher, that $3,000 would exceed the CPF Annual Limit! Isn't that bad, because my $3,000 would be refunded without interest?" No, that's good this time. Let's suppose you don't add that $3,000. Here's what your MA looks like on December 31, 2021, after interest and another month of compulsory contributions are credited:

MA: ~$63,000 (the 2021 Basic Healthcare Sum)

So you enter 2022 with about $3,000 of tax relief opportunity into MA -- the difference between the 2021 BHS and the 2022 BHS. (The 2022 BHS hasn't been announced yet, but it'll probably be $3,000 or a little more above the 2021 BHS.) But what if you put $3,000 into your MA now (in November, 2021)? Here's what happens:

Now MA: $63,000
December 31 MA: $63,000 (compulsory MA contributions and interest flow to your other accounts -- to OA in this example)
(January, you add your ~$3,000 with tax relief)
February, 2022: CPF refunds the $3,000, dropping your MA back down to about $63,000
February, 2022: add the $3,000 back into your MA with more tax relief

So instead of only about $3,000 of tax relief (Year of Assessment 2023) you get about $6,000 of tax relief. You win!

Everyone got this now? This is a "CPF hack." If you happen to be in this situation, congratulations, go get to work now. (Probably on November 29, 2021, specifically, with a Voluntary Contribution to your MA.)

 

[chiokcc]

If my siblings and I top-up my parents' RA $7k, all of us are eligible for income tax rebates?

 

[Okenba]

If my siblings and I top-up my parents' RA $7k, all of us are eligible for income tax rebates?

Up to FRS of that year. Any top-ups above FRS do not get Tax relief.
Also, next year will be 8k, not just 7k.
And also worth noting that next year, you can top-up their MA instead of RA (if RA hits FRS), so long as MA is below BHS. BHS amount is locked at age 65, but there may still be room for top-ups as MA gets used.

 

[BBCWatcher]

If my siblings and I top-up my parents' RA $7k, all of us are eligible for income tax rebates?

If the parent's RA has not reached the Full Retirement Sum, yes, the qualified giver (a child in this case) is eligible for tax relief. Since the tax relief (if any) is assigned to the giver, then his/her taxable income is what matters.

Let's suppose for example your parents have the following RA balances (and no prior withdrawals, just to keep the example simple):

Father's RA: $102,000
Mother's RA: $68,000

The 2021 Full Retirement Sum is $186,000, so there's plenty of room below the FRS. And let's suppose there are 3 children, including you. You could each deposit $5,000 into your mother's RA ($15,000 total) and $2,000 into your father's RA ($6,000 total). Each of you would then qualify for $7,000 of tax relief, the 2021 maximum. If you can otherwise benefit from that tax relief (still have taxable income above the zero percent base exclusion, haven't reached $80,000 per person of maximum tax relief), then you'll see a reduction in the amount of income tax you need to pay in 2022.

In addition, one or both of your parents might be eligible for the Matched Retirement Savings Scheme.

In 2022 the tax relief limit will be raised to $8,000, and the giver will have additional flexibility to decide whether to add funds to the recipient's MediSave Account since that will qualify for tax relief, too, within the $8,000 limit. It's probably a very good idea to repeat this exercise with another $8,000 from each child on January 30, 2021 (via PayNow QR).

 

[chiokcc]

Great! Thanks for the info !!

 

[andyhtc]

That can be OK, and you may want to exceed the CPF Annual Limit this year (2021). I'll explain why in a moment....

There is a point, this year (2021) as a one-time maneuver....

Let's suppose your MA is near the BHS and you expect you'll reach the CPF Annual Limit in 2021. I'll pick some specific numbers:

MA: $60,000
SA: $190,000

OK, so you can't top up your SA for tax relief, but you could add $3,000 to your MA. "But BBCWatcher, that $3,000 would exceed the CPF Annual Limit! Isn't that bad, because my $3,000 would be refunded without interest?" No, that's good this time. Let's suppose you don't add that $3,000. Here's what your MA looks like on December 31, 2021, after interest and another month of compulsory contributions are credited:

MA: ~$63,000 (the 2021 Basic Healthcare Sum)

So you enter 2022 with about $3,000 of tax relief opportunity into MA -- the difference between the 2021 BHS and the 2022 BHS. (The 2022 BHS hasn't been announced yet, but it'll probably be $3,000 or a little more above the 2021 BHS.) But what if you put $3,000 into your MA now (in November, 2021)? Here's what happens:

Now MA: $63,000
December 31 MA: $63,000 (compulsory MA contributions and interest flow to your other accounts -- to OA in this example)
(January, you add your ~$3,000 with tax relief)
February, 2022: CPF refunds the $3,000, dropping your MA back down to about $63,000
February, 2022: add the $3,000 back into your MA with more tax relief

So instead of only about $3,000 of tax relief (Year of Assessment 2023) you get about $6,000 of tax relief. You win!

Everyone got this now? This is a "CPF hack." If you happen to be in this situation, congratulations, go get to work now. (Probably on November 29, 2021, specifically, with a Voluntary Contribution to your MA.)

IRAS would have detected the net top-up to MA in 2021 year of assessment as $0, and $3k in 2022 year of assessment because the income tax is computed around March to April each year.

 

[chiokcc]

So, we should top-up our MA within the first few days of 2022?

BHS $63k (2021) -> ???? (2022)

 

[chiokcc]

https://dollarsandsense.sg/financial-sense-max-medisave-account-basic-healthcare-sum/

 

[andyhtc]

So, we should top-up our MA within the first few days of 2022?

BHS $63k (2021) -> ???? (2022)

Yes, I think this works from 2022 since it is already verified that MA top-up will not be subjected to the mandatory CPF contribution cap. I will be doing so for my MA on the 1st day of every year from now onwards.

 

[iMac]

So, we should top-up our MA within the first few days of 2022?

BHS $63k (2021) -> ???? (2022)

My MA already reached BHS $63K....in Jan 2022, I thinking of topping up another $37K into MA since it will not be subjected to the mandatory CPF contribution cap.

If it overflow, I think the excess will be flowing into SA or OA....am I right?

CPF Rules is so oconfusing.

 

[andyhtc]

My MA already reached BHS $63K....in Jan 2022, I thinking of topping up another $37K into MA since it will not be subjected to the mandatory CPF contribution cap.

If it overflow, I think the excess will be flowing into SA or OA....am I right?

CPF Rules is so oconfusing.

You can only top up to the new BHS, which is about $3k more each year.

 

[a4973]

You can only top up to the new BHS, which is about $3k more each year.

I think what iMac is saying is that he tops up 37k to MA whereby MA gets filled up to the BHS amount say 66k for 2022 then (37k - 3k) = 34k gets overflowed to SA and/or OA. Is this a way to squeeze in more funds to SA and OA not restricted by the Annual Limit since the 37k was topped up via MA (which is not subject to Annual Limit in 2022) ?