SRS Investments

[edmund77]

don't forget the 5% penalty is on top of tax payable on the amount withdrawn

If u don't have any "income", and keep your withdrawal within $40k, at most pay $550 tax right? Am I missing anything else?

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[Shepherd Boy]

If u don't have any "income", and keep your withdrawal within $40k, at most pay $550 tax right? Am I missing anything else?

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On top of your $550 tax, you still need to pay a penalty of $2000.
As it is a premature withdrawal, 100% of the amount withdrawn is taxable. In addition, a 5% penalty is applicable.

 

[edmund77]

On top of your $550 tax, you still need to pay a penalty of $2000.
As it is a premature withdrawal, 100% of the amount withdrawn is taxable. In addition, a 5% penalty is applicable.

But it is still lesser than the tax I would have to pay when I have income right? Assuming your SRS has been earning 0% return,

1. Total tax + penalty is $2,550 for $40k
2. Taxed saved for $40k at 22% tier is $8,800. Even for those not at 22% tier, the savings is still higher than the early withdrawal tax + penalty

Did I get miss anything?

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[Shepherd Boy]

But it is still lesser than the tax I would have to pay when I have income right? Assuming your SRS has been earning 0% return,

1. Total tax + penalty is $2,550 for $40k
2. Taxed saved for $40k at 22% tier is $8,800. Even for those not at 22% tier, the savings is still higher than the early withdrawal tax + penalty

Did I get miss anything?

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All our income tax rates are progressive. Even you are at 22% tier, your first $40k is always $550. So you don't save a tax of $8800.

(https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/)

The rule of thumb is this, if all the "scholars" are so highly paid to safeguard our national treasury; do you think they will allow any loophole for you to manipulate?

 

[apatheticme]

All our income tax rates are progressive. Even you are at 22% tier, your first $40k is always $550. So you don't save a tax of $8800.

(https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/)

The rule of thumb is this, if all the "scholars" are so highly paid to safeguard our national treasury; do you think they will allow any loophole for you to manipulate?

I don't think that's right. Tax reliefs should always be taken from the marginal tax rate, which is the highest rate. I do believe there's a small loop hole for dodging some tax through SRS, but it would require you to not have income for the year you are taking money out to be most effective. Most people making enough to be doing SRS won't find stopping their income just to withdraw SRS early to be worthwhile. Which makes it suitable only for early retirement/some of the backup funds in case of job loss.

 

[Shepherd Boy]

I don't think that's right. Tax reliefs should always be taken from the marginal tax rate, which is the highest rate. I do believe there's a small loop hole for dodging some tax through SRS, but it would require you to not have income for the year you are taking money out to be most effective. Most people making enough to be doing SRS won't find stopping their income just to withdraw SRS early to be worthwhile. Which makes it suitable only for early retirement/some of the backup funds in case of job loss.

Actually i don't quite understand what you are saying. Tax relief is only applicable for those who contributes to SRS without early withdrawal (before retirement). In fact, 100% of the sum withdrawn will be taxed and a 5% penalty will be imposed for those with early withdrawal.

Since 50% of withdrawal sum will still subject to tax after retirement, it's better for you to spread over a period ten years to minimize the income tax.

 

[BBCWatcher]

But it is still lesser than the tax I would have to pay when I have income right? Assuming your SRS has been earning 0% return....

OK, in your first scenario you withdraw $40,000, have no other income, and you pay $2,550 in tax. (That figure is the maximum, with no other income. You still might qualify for a modest amount of tax relief, probably.)

I'm going to modify your second scenario a bit. In my alternative scenario you withdraw $40,000 after reaching age 62, you have other taxable income -- let's suppose $80,000 -- and thus you pay 11.5% tax on half the $40K = $2,300.

So that doesn't work. You need to have rather high income in your age 62+ years to make the math you describe work. But it's mathematically possible.

What you're fundamentally asking is whether you can/should use SRS as a vehicle to defer taxable income into an otherwise non-taxable calendar year, with the assumption that you're probably going to receive taxable income (such as significant rental income) in your retirement years. And the answer to that question is, "Yes, that often makes sense." You still want to try to achieve some reasonable returns on that money, even if you park the money in Singapore Government Securities (which you can do), but yes, that can make sense. The fundamental reason is that the government doesn't appear to charge the marginal tax rate from when you made the contribution(s) if you withdraw the funds early. (Free tip to IRAS: that'd be an effective way to close this particular loophole, if you view it as a loophole.)

Most people can neither predict nor aspire to earn zero (or near zero) income, so using SRS to defer income in the way you describe is not something that's easy to pull off successfully. But if you do have such visibility and inclinations, I say "Go for it."

 

[henrylbh]

If u don't have any "income", and keep your withdrawal within $40k, at most pay $550 tax right? Am I missing anything else?

If no other income, first 20k income is not taxable.

 

[henrylbh]

But it is still lesser than the tax I would have to pay when I have income right? Assuming your SRS has been earning 0% return,

1. Total tax + penalty is $2,550 for $40k
2. Taxed saved for $40k at 22% tier is $8,800. Even for those not at 22% tier, the savings is still higher than the early withdrawal tax + penalty

Did I get miss anything?

If one is at 22% tax bracket in the past, how to survive on 40k withdrawal without any other income?

 

[oceanicmanta]

If one is at 22% tax bracket in the past, how to survive on 40k withdrawal without any other income?

On withdrawal, does SRS take into account interest and dividend income or just "taxable" income like rent, salary ?

 

[henrylbh]

On withdrawal, does SRS take into account interest and dividend income or just "taxable" income like rent, salary ?

In most cases, dividend and interest are not chargeable.

 

[edmund77]

In most cases, dividend and interest are not chargeable.

U have just given the answer to your own question moreover rental income from overseas properties are not taxed in SG.

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[BBCWatcher]

If one is at 22% tax bracket in the past, how to survive on 40k withdrawal without any other income?

Obviously from the savings accrued whilst in the 22% tax bracket. Contrary to popular belief, being in a high tax bracket does not necessarily mean being in a high spending bracket. And vice versa.

 

[henrylbh]

Contrary to popular belief, being in a high tax bracket does not necessarily mean being in a high spending bracket. And vice versa.

You may be an exception and in any case, there some like that. High earning and low spending.

If one has disposal income of no less than 30k a month, it's very unlikely his habitual spending is low like 40k a year or even 100k.

At if one is earning 500k or more a year way before retirement age, it's unlikely the person will stop working by 62yo. And you can expect him to continue to have chargeable income from working and other sources well above 62 so that the 40k withdrawn from SRS will be taxable at the marginal rate above his chargeable income. Again there may be exception that some will have substantial non-taxable income post 62 to support the pre-retirement life style.

 

[limster]

If one is at 22% tax bracket in the past, how to survive on 40k withdrawal without any other income?

Dividends from the stock portfolio are not taxable. My plan is to survive on that.

If my stock dividends are sufficient to cover expenses+standard of living by retirement, I don't have to work for money, but rather, work to keep active and have a sense of helping others.

Don't I have 10 years to withdraw from SRS? Meaning can I work till 65 on salary, then after that, volunteer for free and start the SRS withdrawals?

 

[BBCWatcher]

You may be an exception and in any case, there some like that. High earning and low spending.

There's quite a bit of data on gaps between income and spending. First of all, Singapore's "headline" household savings rate of 24% (2014 figure) is globally extremely high. Yes, it's true that property represents about half that figure -- Singapore has a very high home ownership rate, relatively high real estate valuations, and a lot of savings tied up in property -- but the other half is still a big percentage by global standards.

You can also look at household expenditure survey data. It's not as detailed as I would like, and the data are about 4 years old. However, according to that data the average monthly household expenditures for the top income quintile were $7,568 (2012-2013). The average monthly income for that same quintile was $24,544. (Yes, some of that income is from sources other than employment, but the bulk of it is from employment.) There's a huge amount of savings going on within that top quintile. And well below that quintile, too. Said another way, if the whole country has a 24% savings rate, the top income quintile has to be saving even more than that. And they surely are.

If one has disposal income of no less than 30k a month, it's very unlikely his habitual spending is low like 40k a year or even 100k

The data don't suggest that $30K/month income earners are commonly spending only $40K/year for household expenses. That particular combination looks like it exists, sure, but it's probably not too common. However, $30K/month with $100K/year household consumption looks very common, at least according to the available data.

At if one is earning 500k or more a year way before retirement age, it's unlikely the person will stop working by 62yo.

I don't understand what you mean. Disability is common enough, and that's just one among several reasons why a hypothetical $500K/year income earner would retire well before age 62.

 

[linusz]

Can srs buy company shares directly. Instead of ocbc bcip etc

 

[highsulphur]

Can srs buy company shares directly. Instead of ocbc bcip etc

yes you can

 

[highsulphur]

Any idea which brokerage charges the lowest comm for buying shares on SGX for SRS account?

Vickers is charging 0.28% min $25? Seems like CIMB is the same too.

 

[linusz]

yes you can

How ah. Broking house can ah.