SRS Portfolio

[WHLN17]

Is the withdrawal value for tax purposes on the original costs price or prevailing market rate?

Prevailing market price.

 

[ExEngineer]

There’s another way to think of this…but only for those fortunate enough to build up more than enough wealth/savings (in various buckets eg CPF, SRS and other more liquid asset investments) for their own retirement and want to build up generational wealth to pass on to their children, heirs etc.

If you are in that lucky camp, and yet would prefer not to have the SRS accumulation taxed upon withdrawal, especially if you are continuing to earn other income after 62, which might expose your SRS withdrawals to higher tax brackets…then just leave the SRS funds in place until you die.

The first 400K of SRS withdrawal-upon-death is tax free, and for any amount above 400k, only 50% of it is taxable (and if the dead person was no longer earning any other income in the YA when they died, this “exposed” amount would be taxed at a lower rate than if they withdrew it earlier while still earning other income).

 

[wira]

I am aiming for 400k. That way, if spread over 10 years, each year take out 40k still can escape tax. I have started in my early 40s so 400k is achievable for me. I have since scaled back contributions due to 80k cap on tax deductible. My first full year of invest using SRS only generated 1.1k dividends. However, last year, my SRS portfolio generated 10.687k dividends. This year it is on course to generate about 12k. My total contribution so far is 128k and it has grow to slightly above 200k now. I still have slightly more than 10 years to go before hitting 62. So the accumulated dividends and fresh contribution should hit 400k by age 62. If God willing.

thats a pretty good return of 12K returns for 128K worth of SRS .
May I know what did you invest in to get 10% returns p.a. ?

 

[Mephist0pheLes]

u guys are trying so hard to avoid that tax on SRS withdrawal.

most of us save 7%, 11.5% or more when contributing into SRS, but even if u withdraw 160k a year (or 1.6 mil over 10 years), the tax is only 1.75%.

 

[BBCWatcher]

u guys are trying so hard to avoid that tax on SRS withdrawal.
most of us save 7%, 11.5% or more when contributing into SRS, but even if u withdraw 160k a year (or 1.6 mil over 10 years), the tax is only 1.75%.

I get an effective tax rate of about 2.09% in that scenario, and assuming no other taxable income. It's the income tax on $80,000 of chargeable income which equals $3,350. Either way, it's a very good point.

It gets a little more interesting if you have substantial other taxable income. Let's suppose for example you're collecting $4,000 per month of net taxable rental income ($48,000 per year). Then your chargeable income should be $128,000 ($80,000+$48,000). Total tax goes up to $9,150. But if you have only the rental income ($48,000) then your tax would be $1,110. The difference is $8,040, and that's about a 5.03% effective tax rate on your $160,000 SRS withdrawal. Still not bad, but you can adjust these parameters to run your own forecasts.

 

[sohguanh]

SRS original intention is to siam tax IMHO and definition. So when it is time to withdraw one try all ways to avoid paying tax and this is perfectly logical. Hence I wonder if this SRS is a good initiative from the IRAS.

 

[WHLN17]

thats a pretty good return of 12K returns for 128K worth of SRS .
May I know what did you invest in to get 10% returns p.a. ?

https://ibb.co/H2Ps9q6Realised Profits

https://ibb.co/7yCYxxfTill date's Dividends

https://ibb.co/6RzGy22Contribution History

I think it would be easier to facilitate understanding with pictures. The first one is straightforward, realised profits. Every time I will reinvest the realised profits and dividends. Keeping less than 5k at most time unless really don't have anything to buy.

The 2nd pic also self explanatory. That's the total dividends since day 1 [and reinvested] and the YOC for the respective years.

3rd pic is the contributions and the amounts of tax saved so far, IEXXXX was the income earned in the respective year and the marginal tax bracket that applied to my income tax. Can see that 2020 covid is no joke, less money to contribute.

Right now, I only hold 5 stocks in my SRS portfolio and they are all Sreits from Mapletree, Ascendas and Frasers family. They have almost equal weightage and I am able to achieve YOC of close to 10% because most of them I bought it at very low price compare to now. In fact I hold most of them since day 1 of my SRS investment and added along the way.

 

[Nofear40]

Let’s all aim to retire by 62.. lol

 

[FrontierX]

u guys are trying so hard to avoid that tax on SRS withdrawal.

most of us save 7%, 11.5% or more when contributing into SRS, but even if u withdraw 160k a year (or 1.6 mil over 10 years), the tax is only 1.75%.

my personal objective of pumping srs is to fund my retirement so that i pay less tax eventually.

but if my health and career allows me to continue working and if i still get a high paying job when i am 62, my tax is going to be humongous. i might be incentivized not to work actually.

the other risk is if they raise income tax significantly.

 

[Mephist0pheLes]

my personal objective of pumping srs is to fund my retirement so that i pay less tax eventually.

but if my health and career allows me to continue working and if i still get a high paying job when i am 62, my tax is going to be humongous. i might be incentivized not to work actually.

the other risk is if they raise income tax significantly.

Assuming ur taxable amount is $200k today, at a marginal tax of 18%. ur tax saving on the 8k today is $1,440

Assuming ur taxable amount is $50 million dollar a year when you are 62, at a marginal tax of 24%. Ur tax payable on that 8k is $960. U pay $480 less tax.

And not to mention, if u r invested, you tax saving of $1,440 would be earning a return over the years, so ur net gain is probably more than $480

Unless your marginal tax is very low today (in which case i wouldnt recommend topping up SRS), otherwise u r likely to be better off with SRS even if u continue to work at 62 with a humongous pay check.

And yes, there is policy risk. But that is something we have no basis to plan for, and if u wan to include scenarios that completely goes against the current SG model (i.e. low tax to attract businesses and rich ppl), then your best course of action is to spend every single cent today and leave nothing for the uncertain future.


EDIT: i used 8k bcos for some reason i was thinking of CPF top up. but same story for whatever amount u top up to SRS

 

[Okenba]

my personal objective of pumping srs is to fund my retirement so that i pay less tax eventually.

but if my health and career allows me to continue working and if i still get a high paying job when i am 62, my tax is going to be humongous. i might be incentivized not to work actually.

the other risk is if they raise income tax significantly.

You don't have to withdraw at 62.
If you're earning decent income, then just don't withdraw. You don't need the money, and SRS monies can still be invested. You can start the 10-yr withdrawal process later when your income has dropped or you have no income.

This is different if you have substantial rental income that will be taxed and may not diminish as you get older.

 

[BBCWatcher]

my personal objective of pumping srs is to fund my retirement so that i pay less tax eventually.
but if my health and career allows me to continue working and if i still get a high paying job when i am 62, my tax is going to be humongous. i might be incentivized not to work actually.
the other risk is if they raise income tax significantly.

In addition to the previous comments, why assume you would start withdrawing from your SRS account at age 62? You're not required to start withdrawals at age 62. In fact, you're not required to start withdrawals at all. If you're still working in a high paying job at age 62 you'd have no reason to withdraw SRS funds at age 62. You wouldn't need the money then. You'd have plenty of income.

You can start withdrawing from your SRS account if/when your taxable income is otherwise zero or low. Problem solved!

 

[BBCWatcher]

....This is different if you have substantial rental income that will be taxed and may not diminish as you get older.

I see our answers collided.

About that rental income... You're also not required to have rental income. You're certainly allowed to have other forms of retirement income that Singapore's tax code treats more favorably.

 

[FrontierX]

In addition to the previous comments, why assume you would start withdrawing from your SRS account at age 62? You're not required to start withdrawals at age 62. In fact, you're not required to start withdrawals at all. If you're still working in a high paying job at age 62 you'd have no reason to withdraw SRS funds at age 62. You wouldn't need the money then. You'd have plenty of income.

You can start withdrawing from your SRS account if/when your taxable income is otherwise zero or low. Problem solved!

When is the latest I am obliged to withdraw? I have bosses in my company who are still working in their 70s

but like others said. My total tax burden is not much and my savings stay invested throughout

 

[BBCWatcher]

When is the latest I am obliged to withdraw? I have bosses in my company who are still working in their 70s

You personally are never required to make withdrawals from a SRS account. If you never do then, upon your death, your SRS account is "deemed withdrawn" and only then subject to income tax...but with a hefty S$400K income tax exemption. See here for details.

 

[FrontierX]

You personally are never required to make withdrawals from a SRS account. If you never do then, upon your death, your SRS account is "deemed withdrawn" and only then subject to income tax...but with a hefty S$400K income tax exemption. See here for details.

Thanks!

sounds like a cool death benefit to my child as long as I don’t withdraw if I have enough monies for my retirement

 

[Okenba]

You personally are never required to make withdrawals from a SRS account. If you never do then, upon your death, your SRS account is "deemed withdrawn" and only then subject to income tax...but with a hefty S$400K income tax exemption. See here for details.

The 400k is fine, but the subsequent treatment doesn't seem aligned.
Eg. If I have 1m in SRS, 400k is exempt, of the remaining 600k, only 50% is taxed.
So you would still be taxed on 300k, which would be slightly above $40,000.

However, if we want it to align to the benefits of someone who withdraws over 10yrs, then by right, we should be considering a 100k withdrawal per year. Only 50% of this is taxed, so you are taxed on 50k each year.
This is about $1250 per year, and therefore $12,500 over 10 years.
Under the current tax treatment (or my interpretation of it), you would have paid tax of more than 3x this amount...

Unless I'm not understanding the policy correctly.

 

[BBCWatcher]

sounds like a cool death benefit to my child as long as I don’t withdraw if I have enough monies for my retirement

That's one way to look at it, but as I've mentioned several times (and other things being equal) I don't think it's wise to force beneficiaries to wait until you're dead. If you're going to be generous it's best to be generous as soon as reasonbly possible. Even if that's "only" to help your loved ones grow wealth further. Your progeny's time horizon(s) is(are) longer than yours, so they can build truly dynastic wealth based on prudent investment decisions aligned with their time horizon(s). Many variations are possible, but that's the basic idea.

The 400k is fine, but the subsequent treatment doesn't seem aligned.
Eg. If I have 1m in SRS, 400k is exempt, of the remaining 600k, only 50% is taxed.
So you would still be taxed on 300k, which would be slightly above $40,000.
However, if we want it to align to the benefits of someone who withdraws over 10yrs, then by right, we should be considering a 100k withdrawal per year. Only 50% of this is taxed, so you are taxed on 50k each year.
This is about $1250 per year, and therefore $12,500 over 10 years.
Under the current tax treatment (or my interpretation of it), you would have been taxed more than 3x this amount...
Unless I'm not understanding the policy correctly.

I think your understanding is correct, but there are compensating factors:

1. The SRS account had more time to grow.

2. The longer tax deferral has value. A dollar paid 10+ years into the future is worth less than a dollar paid now.

3. It wouldn't really make any sense to defer SRS account withdrawals unless you have other taxable income (and nontrivial amounts of it). So the S$100K yearly withdrawals in your example would be atop other taxable income. That'd push your tax bracket up to some degree during those withdrawal years, and it's the marginal tax on the S$100K withdrawals (S$50K taxable) that counts.

4. In your year of death you'll probably have some reduction in taxable income from work if you're still working until you die. Of course that'll depend on what point in the calendar year you die, but on average you'd lose roughly half your income from work for that year because you're dead. Dead people ordinarily don't get much salary. With the reduced salary (on average) in your tax year of death your marginal tax rate goes down.

Hypothetically IRAS could make this particular provision more complicated by using a "lookback" rule of some kind, for example to compute the additional income tax owed (if any) if the account value were divided equally and withdrawn across the 9 tax years prior to the holder's death and the tax year when the holder died. But IRAS doesn't seem to like making things "too complicated," for better or worse.

 

[demoforce1]

Would it be a good idea to use SRS to buy STI ETF at this moment?

 

[Sambuca78]

Would it be a good idea to use SRS to buy STI ETF at this moment?

Hmmm.... I thinking whether to use SRS to buy SSB or CLR (Reits ETF).