SRS - any penalty?

[gracehsu]

My dad wants to make use of SRS to reduce his tax.

He will likely retire in 3 years time.

advice needed - does he need to pay any penalty if he withdraws the full SRS after his retirement ? TIA

 

[henrylbh]

My dad wants to make use of SRS to reduce his tax.

He will likely retire in 3 years time.

advice needed - does he need to pay any penalty if he withdraws the full SRS after his retirement ? TIA

Withdrawals are penalty-free only if they take place on or after the statutory retirement age (63 effective from 1 Jul 2022) that was prevailing at the time of your first SRS contribution (i.e. prescribed retirement age). If you have already opened an SRS account and made your first contribution, any subsequent change in the statutory retirement age (e.g. up to age 65) will not affect you.

 

[gracehsu]

Withdrawals are penalty-free only if they take place on or after the statutory retirement age (63 effective from 1 Jul 2022) that was prevailing at the time of your first SRS contribution (i.e. prescribed retirement age). If you have already opened an SRS account and made your first contribution, any subsequent change in the statutory retirement age (e.g. up to age 65) will not affect you.

Thank you
I googled this too but cheem

Current statutory retirement age is 63. If he contributes to SRS this year, he can withdraw the full SRS amount without any penalty once he reached 63yo.. assuming he has no more income... correct hor?

what happens if he has rental income? - will the SRS withdrawal be subject to tax?

 

[Mephist0pheLes]

Thank you
I googled this too but cheem

Current statutory retirement age is 63. If he contributes to SRS this year, he can withdraw the full SRS amount without any penalty once he reached 63yo.. assuming he has no more income... correct hor?

what happens if he has rental income? - will the SRS withdrawal be subject to tax?

There's no penalty if he withdraws at age 63 or later. You have up to 10 years to withdraw whatever your dad has in SRS. But 50% of what you withdraw each year will be subjected to income tax.

E.g. you have 500k in SRS. you decide to withdraw 50k in the first year. 50% of it i.e. 25k will be subjected to income tax for that year. The income tax for 25k, assuming no other income or tax relief, is $100.

 

[henrylbh]

Thank you
I googled this too but cheem

Current statutory retirement age is 63. If he contributes to SRS this year, he can withdraw the full SRS amount without any penalty once he reached 63yo.. assuming he has no more income... correct hor?

what happens if he has rental income? - will the SRS withdrawal be subject to tax?

Half of withdrawal sum will add to rental income and or any other income to determined the income chargeable to tax.

 

[andyhtc]

Thank you
I googled this too but cheem

Current statutory retirement age is 63. If he contributes to SRS this year, he can withdraw the full SRS amount without any penalty once he reached 63yo.. assuming he has no more income... correct hor?

what happens if he has rental income? - will the SRS withdrawal be subject to tax?

Generally, those with rental income after SRS withdrawal starts don't get to enjoy a lot of income tax reductions on the whole. They just get to delay their income tax with some slight reduction.

 

[reddevil0728]

Generally, those with rental income after SRS withdrawal starts don't get to enjoy a lot of income tax reductions on the whole. They just get to delay their income tax with some slight reduction.

Technically one can’t be certain there will be any effective reduction or non reduction. Can end up being net increase cause tax rate can change

 

[fr33d0m]

Generally, those with rental income after SRS withdrawal starts don't get to enjoy a lot of income tax reductions on the whole. They just get to delay their income tax with some slight reduction.

50% reduction in income contributed to SRS.

SRS mainly functions as deferred tax scheme. It does not work very well starting early. The withdrawal can take a long time for tax purpose.

 

[wira]

if you high income earner, SRS could provide significant savings right ?
your tax bracket when you are employed could be much higher than when you are retired.

 

[BBCWatcher]

SRS accounts also don’t work well if you make spectacular investment gains. Let’s suppose you contribute $1,000 in the 22% tax bracket, so you save $220 in income tax. Then the $1,000 mushrooms to $1,000,000. Ooops. You’re going to pay a lot more than $220 in income tax (even in net present value terms) on withdrawals from a $1,000,000 SRS account.

This is rare, of course, but this is why SRS dollars often languish in the cooler parts of overall investment portfolios.

 

[sohguanh]

The 50% subject to income tax can be avoided if you withdraw < 20k as that amount under current tax structure is tax free. But all these may change say even 20k also tax years down the road. Hence I feel SRS is just a deferred scheme but if you live long enough and withdraw low every year after age 63 doable. I predict I short life so not going for SRS as my dad go before 70 so I may follow suit as inherit his genes

 

[fr33d0m]

SRS accounts also don’t work well if you make spectacular investment gains. Let’s suppose you contribute $1,000 in the 22% tax bracket, so you save $220 in income tax. Then the $1,000 mushrooms to $1,000,000. Ooops. You’re going to pay a lot more than $220 in income tax (even in net present value terms) on withdrawals from a $1,000,000 SRS account.

This is rare, of course, but this is why SRS dollars often languish in the cooler parts of overall investment portfolios.

then use SRS for more stable investment. In general, higher return comes with higher risk. There gotta be more stable part of one's portfolio, with average return, e.g. bond portfolio, ETF portfolio or a mixture.

 

[1l92041H]

SRS accounts also don’t work well if you make spectacular investment gains. Let’s suppose you contribute $1,000 in the 22% tax bracket, so you save $220 in income tax. Then the $1,000 mushrooms to $1,000,000. Ooops. You’re going to pay a lot more than $220 in income tax (even in net present value terms) on withdrawals from a $1,000,000 SRS account.

This is rare, of course, but this is why SRS dollars often languish in the cooler parts of overall investment portfolios.

Even worse when we consider that he probably will still pay some tax on it eventually at 62/63 due to maybe business/rental income or he still continues to work.

If we assume best case scenario and he doesn't earn any income on retirement at 62 and saves the full $220.

22% savings over 20 years if he is 42 years today is only about 1.1% savings annually?

i.e. if he is confident of earning more than 1.1% returns on investment he shouldn't put it in SRS?

 

[BBCWatcher]

22% savings over 20 years if he is 42 years today is only about 1.1% savings annually?
i.e. if he is confident of earning more than 1.1% returns on investment he shouldn't put it in SRS?

It doesn’t quite work that way. Let’s assume a simple case: you’re going to put these dollars in Singapore Government Securities (T-bills for example) whether they’re inside or outside the SRS account. In that case any tax savings is a bonus, so the SRS account may win. Also bear in mind the tax savings are front loaded, and you can generate returns from those front loaded tax savings.

The tax savings (or potential tax savings) aren’t worth the bother if the returns you can get outside the SRS account are too limited relative to what you can do inside. And that might be true! In my particular oddball situation I’ve decided it is true, so I haven’t added to the small SRS account that I opened many years ago. (Although oddly enough the SRS account is doing respectably well, but it just wasn’t/isn’t worth the bother for me.)

 

[gracehsu]

Great stuff guys
Thank you so much for the various insights shared

Made me realized that for all these financial stuff, my mind is mostly one-track only I must buck up

Looks like this SRS not very useful for young pple..

I did some simplistic computation based on my dad case.. tax bracket around 10+% also not very worth the trouble cos can save about $2000 in tax but the SRS $15,300 stuck in there for 3 years at 0.05% interest.

Put in FD at 4% will have much better returns

 

[BBCWatcher]

I did some simplistic computation based on my dad case.. tax bracket around 10+% also not very worth the trouble cos can save about $2000 in tax but the SRS $15,300 stuck in there for 3 years at 0.05% interest.

Uh, it’s not stuck earning 0.05% interest. He can use SRS dollars to buy Singapore Government Securities for example. The next 12 month T-bill (for example) will be auctioned next month (January).

For late career income shifting SRS accounts can work rather well, actually.

 

[gracehsu]

Uh, it’s not stuck earning 0.05% interest. He can use SRS dollars to buy Singapore Government Securities for example. The next 12 month T-bill (for example) will be auctioned next month (January).

Alamak , now I hv to plough through the T-bill thread

 

[sohguanh]

Alamak , now I hv to plough through the T-bill thread

Just read first 2 posts is good enough can start already. Next week got one auction

 

[andyhtc]

If one has substantial rental or other taxable income during retirement, SRS is not going to help much overall.

I treat it as a deferred income tax and forced saving for my retirement.

 

[dork32]

Even worse when we consider that he probably will still pay some tax on it eventually at 62/63 due to maybe business/rental income or he still continues to work.

If we assume best case scenario and he doesn't earn any income on retirement at 62 and saves the full $220.

22% savings over 20 years if he is 42 years today is only about 1.1% savings annually?

i.e. if he is confident of earning more than 1.1% returns on investment he shouldn't put it in SRS?

wat sort of lousy maths is that?

1, you cannot just take 22% and divide my 20. there is compounding effect.

2. i can put in tbills and get 4%. 4%>1.1%. does that mean that i should put in srs? no, i put in srs, earn the tax relief, then i use my srs and put into tbills