Is SRS useful ?

[dante-z]

Is SRS useful ?

Any one using SRS ? Please share how this helps you.

 

[hwmook]

Is SRS useful ?

Any one using SRS ? Please share how this helps you.

SRS is useful if saving for retirement as you can get tax "deferment" and reduction depending on your income in future. In general its not a bad scheme but should never be used as emergency fund as it will cost you an arm and an leg if withdrawn early. It should purely be retirement savings.

 

[djchris]

Totally agree. I'm working on building the $400,000 nest in SRS.

I see it as a filler for the retirement gap that covers from 62-72 while CPF covers 65-lifetime.

Once the $400,000 is set, just need to accumulate enough cover current age to 62 to retire.

 

[limster]

Just wondering, assume that you buy shares with SRS monies each year, sometimes you have $1k-$2k leftover. Do you roll this over to next year (where it earns close to zero interest), or do you use the excess to buy stuff like unit trust to absorb this excess cash?

Unlike some, I am not 100% against unit trust (more like 90% against...) since I also hold some China unit trusts ....

 

[lzydata]

The main purpose of SRS is tax relief. Obviously it has downsides, but everyone is free to contribute as much* or as little as you like. So I'd say it is very useful. Question is whether it's appropriate for your situation.

As for high income earners, especially those who trigger the highest marginal rate, in theory they could save a nice chunk of money by opening and then prematurely withdrawing from the SRS accounts. This will only be good for 1 year's tax savings. MOF knows this already, which is why if you prematurely withdraw, you will not be allowed to reopen another SRS account.

* up to the contribution limit.

 

[doody_]

It's not really worth the trouble. You only get tax relief of up to 12k a year. If you're just starting with 60k annual income, you save $840 in tax. In return your money is locked in for potentially 30-40 years with no benefit, besides allowing you to use it to invest in shares. You could instead do a voluntary contribution of 7k to your SA, which also gives you tax relief, is also locked in for 30-40 years, but attracts a 4% interest PA.

 

[hwmook]

The main purpose of SRS is tax relief. Obviously it has downsides, but everyone is free to contribute as much* or as little as you like. So I'd say it is very useful. Question is whether it's appropriate for your situation.

As for high income earners, especially those who trigger the highest marginal rate, in theory they could save a nice chunk of money by opening and then prematurely withdrawing from the SRS accounts. This will only be good for 1 year's tax savings. MOF knows this already, which is why if you prematurely withdraw, you will not be allowed to reopen another SRS account.

* up to the contribution limit.

How do you save money when you make a pre-mature withdrawal and pay the same tax rate + 5% penalty? Are you sure or not? Unless you are out of a job the next year and no income at all else i cannot see the saving.

 

[lzydata]

How do you save money when you make a pre-mature withdrawal and pay the same tax rate + 5% penalty? Are you sure or not? Unless you are out of a job the next year and no income at all else i cannot see the saving.

Someone who is at the 20% rate puts $12k in SRS, gets $2,400 tax relief for the year's income. Next year withdraw the $12k, pay a penalty of $600. Still better off, no?

 

[djchris]

Someone who is at the 20% rate puts $12k in SRS, gets $2,400 tax relief for the year's income. Next year withdraw the $12k, pay a penalty of $600. Still better off, no?

But unless you decide to quit the following year, this 12k adds on to your taxable income which bites you in the butt again.

 

[lzydata]

But unless you decide to quit the following year, this 12k adds on to your taxable income which bites you in the butt again.

Oh that's right, it will count as your taxable income again. Good point.

 

[starfish.starfish]

Is SRS useful ?

Any one using SRS ? Please share how this helps you.

Treat it as forced savings with slightly more flexibility compare to cpf. Also get tax savings.

Then use srs to invest into stocks which anyway may cover the 5% penalty of early withdrawal over long term so no harm. How I wish I can put in more. Lol

 

[hwmook]

Someone who is at the 20% rate puts $12k in SRS, gets $2,400 tax relief for the year's income. Next year withdraw the $12k, pay a penalty of $600. Still better off, no?

No, you obviously don't understand SRS well enough. If you are earning high income the next year, the $12k you withdraw is also subjected to the same tax rate of 20% when you withdraw so you pay $3000 for taking that $12k out, not $600. You lost $600 for nothing.

If your income is not so high, say current tax bracket around 7% and you put in $12k a year and withdraw it 20 years later. You pay a tax rate of $240k + annual income of that year you withdraw which can straight away push you into the 20% tax bracket so you save 7% of $12k every year and get slapped with 5% penalty + 20% tax of $12k so you lost 18% for nothing. If you don't understand SRS then don't jump in without thinking. Its not so simple.

 

[hwmook]

Treat it as forced savings with slightly more flexibility compare to cpf. Also get tax savings.

Then use srs to invest into stocks which anyway may cover the 5% penalty of early withdrawal over long term so no harm. How I wish I can put in more. Lol

You don't lose 5%, you are also going to lose a significant portion of it to tax. Go and read up on SRS if you don't understand. I can't believe so many naive people jump into SRS without knowing how it work exactly.

 

[Genesisz]

It's not really worth the trouble. You only get tax relief of up to 12k a year. If you're just starting with 60k annual income, you save $840 in tax. In return your money is locked in for potentially 30-40 years with no benefit, besides allowing you to use it to invest in shares. You could instead do a voluntary contribution of 7k to your SA, which also gives you tax relief, is also locked in for 30-40 years, but attracts a 4% interest PA.

30-40 years is a long time.

 

[djchris]

You don't lose 5%, you are also going to lose a significant portion of it to tax. Go and read up on SRS if you don't understand. I can't believe so many naive people jump into SRS without knowing how it work exactly.

I find it really strange too. I always found SRS a simple scheme that can't be hard to understand.

 

[lzydata]

No, you obviously don't understand SRS well enough. If you are earning high income the next year, the $12k you withdraw is also subjected to the same tax rate of 20% when you withdraw so you pay $3000 for taking that $12k out, not $600. You lost $600 for nothing.

If your income is not so high, say current tax bracket around 7% and you put in $12k a year and withdraw it 20 years later. You pay a tax rate of $240k + annual income of that year you withdraw which can straight away push you into the 20% tax bracket so you save 7% of $12k every year and get slapped with 5% penalty + 20% tax of $12k so you lost 18% for nothing. If you don't understand SRS then don't jump in without thinking. Its not so simple.

My little idea was how a person might misuse the scheme over a very short term, only two years.

If you yourself understood SRS as well as you think, you would know that you do not have to withdraw all $240k in one lump sum and get hit with a big tax bill. You can withdraw over 10 years and each year only half the amount is taxable. I return your words back to you.

 

[djchris]

My little idea was how a person might misuse the scheme over a very short term, only two years.

If you yourself understood SRS as well as you think, you would know that you do not have to withdraw all $240k in one lump sum and get hit with a big tax bill. You can withdraw over 10 years and each year only half the amount is taxable. I return your words back to you.

The discussion was about premature withdrawal of SRS. And I think we can all agree now that there is no benefit in doing that.

If one were to start withdrawal after 62, they can withdraw $40,000 each year without paying tax because only 50% of the amount is liable for taxation. So multiply that by 10 and one should only aim to accumulate up to $400,000 in their SRS account.

 

[starfish.starfish]

You don't lose 5%, you are also going to lose a significant portion of it to tax. Go and read up on SRS if you don't understand. I can't believe so many naive people jump into SRS without knowing how it work exactly.

If you are still paying tax means you still have income, so why would you withdraw it if you treat it as forced savings?

If these are money you need it in short term (within 5 yrs) you would also not lock it into such financial tools.

I can't believe so many rude people jumping others without further clarifications.

 

[zumaba]

anyone can share what is good way to invest SRS money, besides buying share? say for 10 yrs horizon, for about 5% return annually.

 

[Elmo82]

SRS works on the basis of tax deferral, not tax exemption. Let me use an example to illustrate the mechanics:

For simplicity, I will assume that the money in SRS does not generate any return. In reality, you will enjoy a base interest rate similar to a savings account should you decide not to invest it in instruments such as shares, UT, insurance, bonds etc.

Example Mr A
Age 32 year old in 2015, SRS withdrawal age at 62 (fixed at inception of SRS account)
Contribute S$13,333.33 per year for 30 years to have a total of S$400,000 in account by 62.

At 62, Mr A has 2 options:
1. Lump sum withdrawal, subjected to tax (50% concession) - Allows you to take out one shot 400k, of which 200k will be subjected to prevailing income tax

2. Equal amount withdrawal of S$40,000 per year for 10 years.
a. Based on S$40,000 withdrawal, 50% subjected to income tax
b. If Mr A is no longer drawing any income, he will be subjected to zero tax for the $40k per year that he can take out

Source : https://www.iras.gov.sg/irashome/page04.aspx?id=3346

Example Mr B
Age 32 year old in 2015, SRS withdrawal age at 62 (fixed at inception of SRS account). Income at 80K and above bracket. Contribute S$10k per year for 5 years before losing his job

Based on 80K income with tax exemptions for first 20k, earned income relief, cpf contribution etc, Mr B will probably still be subjected to income tax rate of 7% for the highest tier portion of his income
.
Assuming he lost his job after contributing for 5 years, he would have 50k in SRS account. Assuming he withdraws 20K for usage, he will be charged a penalty for early withdrawal.
He will not be liable for income tax as first 20k is not subjected to tax. In this instance, the 5% penalty is lower than the 7% he would have attracted.
Tax saving 7% x 20k = $1400
LESS
Early Withdrawal Penalty 5% x 20k = $1000
Saved tax = $400

Tax saving 11.5% x 20k = $2300
LESS
Early Withdrawal Penalty 5% x 20k = $1000
Saved tax = $1300

Source for Income Tax Rate: https://www.iras.gov.sg/irashome/page04.aspx?id=1190


In a nutshell, SRS is to defer your tax liability, with an attractive tax reduction proposition in exchange getting people to be more pro-active in managing their own retirement needs.

Of course, this may not be suitable for everyone so do refer to official source for more information.