Can you explain what you mean by "Bust through 10 year withdrawal limit".
Sure.
According to IRAS’s rules, once you start SRS drawdown at age 62 or later you have a maximum of 10 calendar years to draw it down. You can draw it down in any combination of cash or in-kind distributions, such as a transfer of shares of stock to another, regular account. As you take distributions you pay ordinary income tax rates on 50% of the distribution(s) for the calendar year. So if you have no other taxable income, you can make a withdrawal of up to S$40,000 per year tax free (in the 0% tax bracket). Half of $40,000 is $20,000, and that’s the maximum tax free taxable income in Singapore. These figures are calculated inclusive of the gains (accumulated interest, dividends, and capital gains).
You can pause withdrawals (cash and/or in-kind) once you start them, but the single 10 year clock continues to run. Once age 62+ withdrawals start, the 10 year clock starts, too. (And once you start withdrawing at age 62+, you can no longer contribute to your SRS.)
At the end of the 10th year, whether or not you actually withdraw the rest, the entire SRS balance is “deemed withdrawn.” You then pay income tax, at ordinary rates, on 50% of that deemed withdrawal. If that’s $200,000, then you pay income tax on $100,000 — and there is a substantial amount of income tax on that figure. So if you have a “big” SRS, you’re not going to be able to pull out everything in 10 years tax free. And if you have a trickle of other taxable income, such as rental income or a director’s fee or a consulting fee, this gets even harder.
There is ONE and only one exception to the 10 year rule: a single premium LIFE annuity. Not an annuity to age 99 (which is bizarre — why are we even talking about that? buy life!), not an annuity that requires multiple premium payments. (Although you can increase an annuity, or buy another life annuity, as long as it’s still a single premium.) And a life annuity lets you spread out the payments for life, which is hopefully 30+ years (age 62 to age 92+ for example).
Do you mean if we use SRS account to purchase annuity, say use ALL our SRS monies (300k) to purchase annuity, then there's no need to pay tax?
No, you still pay tax, but if the life annuity payout is $40,000 per year or less, and if that’s your only taxable income, you would pay zero income tax in Singapore.
Of course, please double check all these rules, but that’s my understanding.
If the single premium life annuity offers decent or better value for money, then it could be a very reasonable thing to do if you have a “big” (or bigger) SRS and want to be as tax efficient as possible. The life annuity smooths out the withdrawals over a much longer period, helping you stay down into the 0% or at least lower tax brackets.
On the other hand, if you have a really big taxable income in retirement — you’re collecting consulting fees, enormous amounts of rental income, etc., etc. — and you’re in the top 22% tax bracket no matter what you do, then you might as well just yank everything out of your SRS in one shot and pay 11% (22% on 50% of the value of the withdrawal). I’m not describing very many people in this happy situation.
I’m assuming a citizen or PR in the above discussion. The rules are different again for foreigners in certain ways (and for certain ex-citizens/ex-PRs). Also, for PRs (not citizens) there is 11% tax withholding on distributions, including distributions in the form of life annuity payments, but the tax withholding is eventually refundable if you’re actually in a lower (or zero) tax bracket. That’s annoying, of course, but that’s how it goes.
I don’t recommend SRS unless and until you’ve exhausted Child Development Account (CDA) matching funds and CPF tax relief opportunities. Put your first dollars into those other two vehicles before considering SRS.
For U.S. persons, SRS is...”interesting.” You have to be very careful with it (to avoid PFIC complications), and I’m not convinced it’s such a great idea at all. Also, SRS can only provide Singapore tax benefits, when it does. If you live and/or retire overseas, that other country’s tax code almost certainly won’t grant SRS accounts any tax favors.
