SRS Portfolio

[RedsYWNA]

Interesting. I was under the impression that USD shares cannot be traded because "Settlement currency for CPF/SRS trades must be in Singapore Dollars". Do you set SGD settlement and the FX gets applied for you automatically?

Yes, set SGD mode and the FX is applied automatically. But at current price and units of 10, realistically, we can only buy 20 units of S27, as previously mentioned.....

S27 does have a few pros esp for LT holding even if you include the unfavorable FX spread and the poor liquidity, because the exp ratio is super low at 0.09%,

 

[skpuppy]

This is same for buying other index ETFs with poor liquidity (like VWRA) isn't it?

Eh…VWRA fund size is about $2.5B whereas S27 fund size is $310mil. VWRA is it ireland domiciled hence you pay lower withholding tax and also no estate tax. S27 I think you will be subjected to withholding and estate tax. Although listed in SG, I think it is a US etf.

 

[skpuppy]

Yes, set SGD mode and the FX is applied automatically. But at current price and units of 10, realistically, we can only buy 20 units of S27, as previously mentioned.....

S27 does have a few pros esp for LT holding even if you include the unfavorable FX spread and the poor liquidity, because the exp ratio is super low at 0.09%,

If not using SRS, I think most would go for VOO or SPY

 

[RedsYWNA]

If not using SRS, I think most would go for VOO or SPY

Yes yes of course, S27 is the worst of the S&P 500 options (low liquidity, wide spread). VUSD or VOO are much better proxies for S&P 500.

But for SRS, its one of the better ones. At least you know over 20 years, its highly likely that you can keep up/outpace inflation rates with S27, and its significantly cheaper than Infinity 500 as well.

 

[belgarathc]

Yes, set SGD mode and the FX is applied automatically. But at current price and units of 10, realistically, we can only buy 20 units of S27, as previously mentioned.....
S27 does have a few pros esp for LT holding even if you include the unfavorable FX spread and the poor liquidity, because the exp ratio is super low at 0.09%,

At least the fx spread is a one time expense. Long term, I think it is still lower cost than the robos and funds alternatives.

 

[skpuppy]

Yes yes of course, S27 is the worst of the S&P 500 options (low liquidity, wide spread). VUSD or VOO are much better proxies for S&P 500.

But for SRS, its one of the better ones. At least you know over 20 years, its highly likely that you can keep up/outpace inflation rates with S27, and its significantly cheaper than Infinity 500 as well.

Good point.

At least the fx spread is a one time expense. Long term, I think it is still lower cost than the robos and funds alternatives.

On paper, etf is definitely better but can’t tell for sure. United global quality funds beats S&P500 despite charging a higher fees

 

[livingston]

Hi, some query

refer to the SRS statement below

Supplementary Retirement Scheme (SRS)​

The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.


it mean that withdrawal will cause 50% tax..........so theoritical ideal case is make it full 400k and spread for 10 year withdraw to prevent tax.

Here is my question..........all the earnining in the SRS tax may subject to tax when withdrawal..........but this is none taxable if you use cash

for example, you invest singtel, 400k with cash and invest singtel 400k in SRS
in the event the singtel price is double........say 800k networth.

if you invest in cash, none tax will be tax when you withdraw.............but if you invest in SRS, all the above 400k value is taxable...........it seem not a good idea if you foreseen your final capital in the SRS will exceed 400k.

thus if you are a good investor, it is not a good idea to top up your SRS, because when your investment is double or triple, it will exceed the 400k limit..........and become taxable......defeat the purpose for tax saving???

am i intrepret correctly?

 

[highsulphur]

Hi, some query

refer to the SRS statement below

Supplementary Retirement Scheme (SRS)​

The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.


it mean that withdrawal will cause 50% tax..........so theoritical ideal case is make it full 400k and spread for 10 year withdraw to prevent tax.

Here is my question..........all the earnining in the SRS tax may subject to tax when withdrawal..........but this is none taxable if you use cash

for example, you invest singtel, 400k with cash and invest singtel 400k in SRS
in the event the singtel price is double........say 800k networth.

if you invest in cash, none tax will be tax when you withdraw.............but if you invest in SRS, all the above 400k value is taxable...........it seem not a good idea if you foreseen your final capital in the SRS will exceed 400k.

thus if you are a good investor, it is not a good idea to top up your SRS, because when your investment is double or triple, it will exceed the 400k limit..........and become taxable......defeat the purpose for tax saving???

am i intrepret correctly?

It makes sense for me to contribute because i can realise tax savings upfront. If I'm on the 20% tax bracket, i save 80k on that 400k for certain.

Second, my tax bracket when I withdraw is unknown but presumably it should be lower than my current bracket. Say in your example i have 800k which i need to withdraw over the max 10 year period. 80k attracts 3430 tax or 34300 for the entire 800k. Still a 40k plus savings. Of course if your profit is higher the gap narrows. But that would be a happy problem to have

 

[skpuppy]

Hi, some query

refer to the SRS statement below

Supplementary Retirement Scheme (SRS)​

The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.


it mean that withdrawal will cause 50% tax..........so theoritical ideal case is make it full 400k and spread for 10 year withdraw to prevent tax.

Here is my question..........all the earnining in the SRS tax may subject to tax when withdrawal..........but this is none taxable if you use cash

for example, you invest singtel, 400k with cash and invest singtel 400k in SRS
in the event the singtel price is double........say 800k networth.

if you invest in cash, none tax will be tax when you withdraw.............but if you invest in SRS, all the above 400k value is taxable...........it seem not a good idea if you foreseen your final capital in the SRS will exceed 400k.

thus if you are a good investor, it is not a good idea to top up your SRS, because when your investment is double or triple, it will exceed the 400k limit..........and become taxable......defeat the purpose for tax saving???

am i intrepret correctly?

Why r u thinking of a scenario that may not happen? SingTel can double in 10 years (need to grow at 7.2% per annum), pigs can fly. S&P with all the power guns only manage 10% on average. Unless you are gambling with stocks like sembmarine and some low cap stocks, then maybe got chance. If you’re investing in SingTel, m1, Keppel Corp, semb Corp, SPH, I think u will be
(1) super lucky if u can hit $600k.
(2) lucky if it ends quite flat
(3) quite normal for it to end below
Now if you invest in China or US etf, then maybe got chance. In the event if u double or triple, pay tax la. Help those less fortunate. No need to really be so hard up on all these small small things.

 

[Kojo0403]

Yes yes of course, S27 is the worst of the S&P 500 options (low liquidity, wide spread). VUSD or VOO are much better proxies for S&P 500.

But for SRS, its one of the better ones. At least you know over 20 years, its highly likely that you can keep up/outpace inflation rates with S27, and its significantly cheaper than Infinity 500 as well.

agree.
for SRS to invest into US, S27 is probably the best option. interms if it’s annual expense ratio.
US dividend yield is low as well hence the withholding tax is not a major issue to me.

Hopefully similar to O87, they will list a SGD counter for this.

Separate question- who does the fx conversion for your dividend from S27? spreads ok?

 

[Suleyman]

It makes sense for me to contribute because i can realise tax savings upfront. If I'm on the 20% tax bracket, i save 80k on that 400k for certain.

Second, my tax bracket when I withdraw is unknown but presumably it should be lower than my current bracket. Say in your example i have 800k which i need to withdraw over the max 10 year period. 80k attracts 3430 tax or 34300 for the entire 800k. Still a 40k plus savings. Of course if your profit is higher the gap narrows. But that would be a happy problem to have

When you withdraw your SRS, you pay income tax for half of the withdrawal. So, assuming you spread the 800k over the 10 years, you'll be paying income tax only on 40k a year. Assuming you are fully retired with no other source of income, that's $550 (based on today's rates) per year. You've got to have made a heck of a lot of profit to catch up with the tax you would have paid over the years for the 400k initially

 

[highsulphur]

When you withdraw your SRS, you pay income tax for half of the withdrawal. So, assuming you spread the 800k over the 10 years, you'll be paying income tax only on 40k a year. Assuming you are fully retired with no other source of income, that's $550 (based on today's rates) per year. You've got to have made a heck of a lot of profit to catch up with the tax you would have paid over the years for the 400k initially

Oh yes forgot about the 50% discount

 

[1nd3x1nv3stor]

Hi, some query

refer to the SRS statement below

Supplementary Retirement Scheme (SRS)​

The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.


it mean that withdrawal will cause 50% tax..........so theoritical ideal case is make it full 400k and spread for 10 year withdraw to prevent tax.

Here is my question..........all the earnining in the SRS tax may subject to tax when withdrawal..........but this is none taxable if you use cash

for example, you invest singtel, 400k with cash and invest singtel 400k in SRS
in the event the singtel price is double........say 800k networth.

if you invest in cash, none tax will be tax when you withdraw.............but if you invest in SRS, all the above 400k value is taxable...........it seem not a good idea if you foreseen your final capital in the SRS will exceed 400k.

thus if you are a good investor, it is not a good idea to top up your SRS, because when your investment is double or triple, it will exceed the 400k limit..........and become taxable......defeat the purpose for tax saving???

am i intrepret correctly?

No, that should not be how you interpret it.

If we assume that tax rate is 20% and initial investment is $100 (I do not use 400k for simplification, but it should be the same concept)
With SRS: Your initial investment is $100.
When it doubles years later ($200) and you withdraw, you will get $160 ($200 minus 20% tax).
With Cash: Your initial investment is $80.
When it doubles years later ($160) and you withdraw, you will get $160 (no tax)
So it should be the same whether you pay tax in advance or later.

However investing with SRS is still better because of 2 things:
1. We assume our tax rate will be lower when we are 62.
2. Only 50% of the amount is subjected to tax.

Hope this helps.

 

[RedsYWNA]

agree.
for SRS to invest into US, S27 is probably the best option. interms if it’s annual expense ratio.
US dividend yield is low as well hence the withholding tax is not a major issue to me.

Hopefully similar to O87, they will list a SGD counter for this.

Separate question- who does the fx conversion for your dividend from S27? spreads ok?

Cant rem the spread, but I think its around 0.8%. Everything is handled by DBS Vickers , and they take a cut off the FX conversion for dividend, as well as a dividend handling fee of 1% (still negligible, given the lack of other SRS options)

 

[Kojo0403]

Cant rem the spread, but I think its around 0.8%. Everything is handled by DBS Vickers , and they take a cut off the FX conversion for dividend, as well as a dividend handling fee of 1% (still negligible, given the lack of other SRS options)

got it, that’s helpful. thanks

 

[twinklingstars]

I'm at the 7% tax rates, will take at least 7 years (early 40s) before I reach the next bracket, is it worthwhile to start contributing to SRS now?

 

[celtosaxon]

When you compare SRS versus no SRS, the benefit is simply the difference in % taxes saved now versus % paid later. To calculate it, you must count the tax savings as being invested and getting the same return as your SRS money.

Let’s assume you are 61 and make a $10,000 contribution in the 20% tax bracket:

CASH IN: $10,000

$10,000 x 20% = $2,000 tax savings
+10% gain for the year
$11,000 + $2,200

Let’s assume a 10% gain for the year. Next year you withdraw and assume half gets taxed at 20% (same bracket)

$5,500 x 20% = $1,100 (10% on $11k)

With SRS: $9,900+$2,200 = $12,100
Without SRS = $11,000

So, even in the same tax bracket, net of investment gains, you are still 10% better off, this is the difference between the 20% tax saved and the 10% paid at the end.

If the same person had 0% taxes then this person would be a full 20% better off in the end, plain and simple.

 

[celtosaxon]

Eh…VWRA fund size is about $2.5B whereas S27 fund size is $310mil. VWRA is it ireland domiciled hence you pay lower withholding tax and also no estate tax. S27 I think you will be subjected to withholding and estate tax. Although listed in SG, I think it is a US etf.

S27 is the symbol for SPY when traded on the SGX. It is actually one in the same, just a cross listing. So when you buy S27 you are actually buying SPY.

If you buy S27 in your SRS, estate tax won’t apply because your SRS operator manages the investments through a foreign intermediary, in the case of UOB this is UOB Nominees.

The 30% withholding tax on dividends does apply. Currently the dividend rate is 1.24% per annum x 30%, so about 1/3 of a percent is lost each year. But, given the low expense ratio of less than 1/10 of one percent, you are still under 1/2 of one percent in total which is hands down better than any other SRS eligible investment in US equities.

Note as well that it is possible to eventually withdraw the shares by in-kind transfer to CDP and then cross-border transfer to IBKR and sell as SPY shares in the US, so you won’t have to deal with the poor spreads, high commissions or lousy exchange rates except at the start.

I have made four purchases of S27 in my SRS so far and roughly it’s been about 1/3, 1/3, 1/3 for spread, currency & commissions/fees, or about 1% upfront cost. Well worth it in my opinion, given it’s a long-term investment, especially if I can liquidate more efficiently in the end.

 

[andyhtc]

I'm at the 7% tax rates, will take at least 7 years (early 40s) before I reach the next bracket, is it worthwhile to start contributing to SRS now?

If you transfer $15.3k (cap) into the SRS, your direct tax saving is 0.07 x $15.3k = $1.071k. That is quite a lot of tax savings.

 

[skpuppy]

If you transfer $15.3k (cap) into the SRS, your direct tax saving is 0.07 x $15.3k = $1.071k. That is quite a lot of tax savings.

Yes. Then u whack this $15300 into infinity global fund, can get another 8-10% returns. Safe haven until everyone starts nuking each other else global world economy will be the most diverse