IRAS subsidy

[anfielder]

I just went down to cpf office with a cheque to my mum's name. Need to know her IC no. I do not think they need to be of retirement age cause they just treat it as topping up of parents' cpf.

Can also do it online at the cpf website then do a internet banking bill payment to cpf.

 

[DevilCurseYou]

Sure assume investment amount 10k 10% bracket 40 year horizon and 5% ROE.

No SRS, 9k x 1.05^40 is about 63k.

With SRS 10k investing gets 70k.35k subject to tax so nett 66.5k is yours.

So yes Srs makes u better off but notice tax is now 3.5k, up from 1k so it's obvious that capital gains are being somewhat taxed else how come tax amt goes up.

Now i have an srs account but it is this part plus as you rightly pointed out lack of liquidity that limits my use of it. Your mileage may vary but there's no need to be condescending. I want to enjoy my retirement rather than dole out small amounts based on tax considerations

Btw i was in 0% bracket when i started but had some cash to invest from savings if you need a more concrete example - go ahead assume any non zero tax rate on withdrawal. And estate taxes aren't zero either but that's irrelevant as the tax would be on estate so no difference from cash.

as shown in your example, without SRS, the net is 63k. after SRS, the net is 66.5k. so in this example, having SRS leaves you with more net amount and hence it will be better. please do not think about the taxes or be stingy about it, just think for your own net benefit (in this case).

lzydata himself has already raised the points for contention

I think it is a very fair assumption that the tax rate at age 62 and beyond is the same or lower than during the contribution age. This is a retirement savings account. Why should a person start withdrawing from his SRS if he is (1) still working, and (2) earning big bucks? He does not have to withdraw on his 62nd birthday or any fixed date. Only when his income is low or nothing, then he should start withdrawing. If he is fortunate enough to never need the money, it can even become part of his estate.

Of course, it is possible that in 30 or 40 years' time Singapore will have very high income taxes and everyone cannot escape, even a retiree with no income besides SRS. But because only 50% of the amount withdrawn is taxable, income tax rates will have to rise significantly* in order to lose money by investing through SRS as opposed to cash. Even then, if one spreads out one's withdrawals over 10 years rather than withdrawing all in one shot - i.e. careful planning - the marginal rate each year will certainly be lower.

I would disagree with the assumption of the tax rate at retirement age would be same or even lower than contribution age. a poly student could start in the 2% tax bracket, and possibly retire as a manager in the 7% bracket. Hence, even with the 50% discount, the retiree is paying 3.5% marginal tax. So the person is worst off when contributing with low income.

Another possibility is dying. There is about 8% chance of dying between age 40 and 62, and we choosing the age to die is not exactly always within our plan. Upon death, the half the entire sum in SRS would be taxed, and given the huge investment, it could push the year income to the 20% bracket.

Another issue is the definition of retirement age. Currently, while it remained defined as 62, there are plans to push it to 70. This could leave people who are unemployed for some years to age 70. To draw on SRS will then be unfavourable with 100% of the sum taxed in high bracket, in addition to a 5% penalty.

lastly, if the cost due to limitation of investment options in SRS is over 2%p.a., it will negate any favourable tax treatment for SRS.

 

[dork32]

as shown in your example, without SRS, the net is 63k. after SRS, the net is 66.5k. so in this example, having SRS leaves you with more net amount and hence it will be better. please do not think about the taxes or be stingy about it, just think for your own net benefit (in this case).

lzydata himself has already raised the points for contention


I would disagree with the assumption of the tax rate at retirement age would be same or even lower than contribution age. a poly student could start in the 2% tax bracket, and possibly retire as a manager in the 7% bracket. Hence, even with the 50% discount, the retiree is paying 3.5% marginal tax. So the person is worst off when contributing with low income.

Another possibility is dying. There is about 8% chance of dying between age 40 and 62, and we choosing the age to die is not exactly always within our plan. Upon death, the half the entire sum in SRS would be taxed, and given the huge investment, it could push the year income to the 20% bracket.

Another issue is the definition of retirement age. Currently, while it remained defined as 62, there are plans to push it to 70. This could leave people who are unemployed for some years to age 70. To draw on SRS will then be unfavourable with 100% of the sum taxed in high bracket, in addition to a 5% penalty.

lastly, if the cost due to limitation of investment options in SRS is over 2%p.a., it will negate any favourable tax treatment for SRS.

2% tax bracket put srs for what? spend also not enuf. not only that poly fresh grad have to wait for how many years then can get. fresh grad also got very little savings. better to build up the savings first.

srs is a scheme to help the high income people. i feel if u are not in the 7% bracket, dont waste time.

Most people will take quite a few years before getting into the bracket. during that time, you can start to build your cash on hand before putting money into srs.

for myself, i only started to put into srs when i hit the 11.5% bracket. yeah, some of you will say that i am very late in doing this. but along the way, i start to build up cash which i can use to buy car, buy property. srs cannot buy these two.

agree if i die suddenly then i will be taxed so much that i may rise from the dead to challenge iras.

i will only take my srs money only when i retire. if still working after 62, then take out money for what? salary already enuf. srs is like the the name suggest, for retirement. no more income then take it out.

cost of investment can be quite low if u buy blue chips 0.25% + a few dollars here and there.

 

[DevilCurseYou]

i will only take my srs money only when i retire. if still working after 62, then take out money for what? salary already enuf. srs is like the the name suggest, for retirement. no more income then take it out.

cost of investment can be quite low if u buy blue chips 0.25% + a few dollars here and there.

I am making the point retirement is not defined by individuals. It is defined by the statutory retirement age, which is currently 62, with calls for raising it to 70. Currently at 62, there is already a good chance of someone being forced into retirement before that age. If the retirement age is raised 70, there is even a greater chance of an being unemployed before the statutory retirement age, and hence unable to withdraw SRS without penalty.

I am not referring to the cost of investment. I am referring to the opportunity cost of placing fund in SRS compared to cash outside SRS. Leveraged position like typical investment property and longing 130% on STI ETF on margin are options unavailable to SRS funds. If these options are able to generate more returns, putting money into SRS can be a case of penny wise, pound foolish.

 

[dork32]

I am making the point retirement is not defined by individuals. It is defined by the statutory retirement age, which is currently 62, with calls for raising it to 70. Currently at 62, there is already a good chance of someone being forced into retirement before that age. If the retirement age is raised 70, there is even a greater chance of an being unemployed before the statutory retirement age, and hence unable to withdraw SRS without penalty.

I am not referring to the cost of investment. I am referring to the opportunity cost of placing fund in SRS compared to cash outside SRS. Leveraged position like typical investment property and longing 130% on STI ETF on margin are options unavailable to SRS funds. If these options are able to generate more returns, putting money into SRS can be a case of penny wise, pound foolish.

what I am trying to say is it does matter when my statutory retirement is. I can retire anytime I want. when I happy happy retire, my income is 0. I happy happy withdraw 40k a year from srs. tax rate will be 3.5%+5%penalty. Still lower than 11.5% per year that I am paying now.

i did mention that srs cannot buy property. this is one of the reason why i did not plough into srs when i was younger. i wanted to accumulate cash for the down payment for new property.

as for sti, though you cannot buy the etf (not sure as i have never tried), you can buy many of the sti components using srs. eg buy singtel and get 4.x% dividend + capital appreciation. use srs vs use cash to buy singtel (or any sti component) only a few dollars different. all this longing and shorting is not for me. the only time i will invest with money that i do not have is when i buy a property. i am too risk averse to do that.

 

[highsulphur]

The withdrawal age for your srs is fixed at the prevailing retirement age when you make your first contribution.

 

[Panerex]

I just went down to cpf office with a cheque to my mum's name. Need to know her IC no. I do not think they need to be of retirement age cause they just treat it as topping up of parents' cpf.

While the parents do not need to be of retirement age to receive our top ups, but in order for CPF to disburse monthly cheques to them, they should be at retirement age right?

 

[mummy1234]

While the parents do not need to be of retirement age to receive our top ups, but in order for CPF to disburse monthly cheques to them, they should be at retirement age right?

I am not sure about that. You will have to ask CPF board...

 

[henrylbh]

I just went down to cpf office with a cheque to my mum's name. Need to know her IC no. I do not think they need to be of retirement age cause they just treat it as topping up of parents' cpf.

If top up with cash as voluntary contribution, it goes into all 3 accounts (OA, SA & MA). No tax relief.

If you top up with cash to SA (if parent below 55) or RA (if parent above 55), you get tax relief up to 7k.

If you top up with CPF, you need to meet the min sum and there is no tax relief.

I top up my father's RA with 30k from my OA and he is allowed to with 690 pm which goes into our joint account which we do not touch or withdraw. But that's no my purpose. The 30k in his RA is earning 5% while the same amount in my OA is earning 2.5% only. I am going to top up another 20k and request for higher payout.

 

[dork32]

If top up with cash as voluntary contribution, it goes into all 3 accounts (OA, SA & MA). No tax relief.

If you top up with cash to SA (if parent below 55) or RA (if parent above 55), you get tax relief up to 7k.

If you top up with CPF, you need to meet the min sum and there is no tax relief.

I top up my father's RA with 30k from my OA and he is allowed to with 690 pm which goes into our joint account which we do not touch or withdraw. But that's no my purpose. The 30k in his RA is earning 5% while the same amount in my OA is earning 2.5% only. I am going to top up another 20k and request for higher payout.

very smart guy. your own oa account dont know when then can use it. but u transfer it to dad account so you can start to withdraw it much earlier. If u dont need money can also earn higher interest.

much better if you do it to your mother's account as well.

this trick is the best if you are the only son, or parents nominates you for the cpf. if u have many brother and sister, they may come and fight for your parent's cpf next time.

 

[peterpark3r]

if parents reach dda still can top up?

 

[henrylbh]

if parents reach dda still can top up?

My father is reaching 87, and I still topping up for him! At this age, the drawdown will be higher as it appears the top up will pay out over about 5 years.