SRS Withdrawal Strategy

[Okenba]

This is just an intellectual exercise. Those who are eligible to withdraw SRS at Penalty Free rates can try and update. =p

Now, I know most people have the idea to withdraw from SRS at $40k/year so that they don't have to pay tax.
According to IRAS, once you hit the Prescribed retirement age, only 50% of your SRS withdrawals are taxed.
Since first 20k of income is not taxed, the idea is that so long as you are not earning income, withdrawing $40k from SRS will cause only $20k to be taxed, and so, you pay no tax.

However, I think we have not considered the idea of tax relief.
Minimally, we should still be eligible to contribute up to $15.3k to SRS for Tax Relief?
So if I withdraw $70.6k, only $35.3k is eligible to be taxed. Then I subtract SRS Tax Relief of 15.3k, so only 20k is taxable.
Even though I will need to put 15.3 back into SRS, effectively, I would be withdrawing $55.3k for Zero Tax dollars.

Would this work? Is it worth jumping through the hoops just to withdraw 15.3k more each year for free?
If you have more tax relief that is due to you, you may take this even further...

 

[celtosaxon]

This is just an intellectual exercise. Those who are eligible to withdraw SRS at Penalty Free rates can try and update. =p

Now, I know most people have the idea to withdraw from SRS at $40k/year so that they don't have to pay tax.
According to IRAS, once you hit the Prescribed retirement age, only 50% of your SRS withdrawals are taxed.
Since first 20k of income is not taxed, the idea is that so long as you are not earning income, withdrawing $40k from SRS will cause only $20k to be taxed, and so, you pay no tax.

However, I think we have not considered the idea of tax relief.
Minimally, we should still be eligible to contribute up to $15.3k to SRS for Tax Relief?
So if I withdraw $70.6k, only $35.3k is eligible to be taxed. Then I subtract SRS Tax Relief of 15.3k, so only 20k is taxable.
Even though I will need to put 15.3 back into SRS, effectively, I would be withdrawing $55.3k for Zero Tax dollars.

Would this work? Is it worth jumping through the hoops just to withdraw 15.3k more each year for free?
If you have more tax relief that is due to you, you may take this even further...

Not sure I totally understand what you are suggesting, but as I understand it, once you start withdrawals, you can no longer contribute to SRS.

That said, it is true that the upfront tax relief is a major consideration - and is what usually makes SRS worth it, despite the risk of future tax on investment gains (that would have gone tax free outside the SRS wrapper).

If you assume that those savings are invested and earn the same return as your SRS savings, you can quantify the potential benefit by taking the tax rate on the tax relief minus half your future effective tax rate on withdrawals.

In the case of a foreigner who withdraws the entire lump sum after 10 years and is no longer a tax resident at the time of the withdrawal, they will pay at least 7.5% tax. If the savings from tax relief was also 7.5%, then they would simply break-even and gain nothing.

For those who can do the 10 year spread and remain tax residents during that time, even with a lower % tax relief, they are still likely to see some benefit, even if you handicap SRS with an additional percent or two for local investment inefficiencies versus non-SRS investment options.

 

[Prof. Utonium]

1. Is there an age limit for contributions to the SRS?​

With effect from 1 October 2008, there will no longer be an age ceiling for contributions to the SRS. You can contribute to the SRS up to any age, until the point where you make the first withdrawal from the SRS:

(i)at or after the statutory retirement age that was prevailing when you made your first SRS contribution; or

(ii)on medical grounds.

Once such a withdrawal is made, SRS members will no longer be allowed to make new contributions to their SRS accounts.​

Unless the website and document is outdated, the loophole is closed.

 

[gold_eagle36]

My understanding also is that one you withdraw. The 10 years timeline will kick in. No more contributions.

For large accumulated srs amounts. Only way to drag the payout beyond 10 years and not pay any tax is to get an SRS approved lifetime annuity.

 

[Okenba]

I see. My bad for not reading up more. Thanks for enlightening.
I guess it would still work for other forms of tax relief, but no longer for SRS. (Maybe can do it for the first year of withdrawal...)

 

[Utonian]

Statutory retirement age will be going up from 62 to 63 from 01 July 2022. Those that want to lock in the option to withdrawal at 62yo should consider opening an SRS account since there is no minimum amount required.

While SRS contribution is not allowed once withdrawal start, CPF top up can still be used in place of SRS topup?
Plus since already above 55yo, assuming you have FRS, you can even withdrawal after the top up or earn 2.5%?

 

[dgeralds]

My understanding also is that one you withdraw. The 10 years timeline will kick in. No more contributions.

For large accumulated srs amounts. Only way to drag the payout beyond 10 years and not pay any tax is to get an SRS approved lifetime annuity.

Can I delay SRS withdrawal until 70? Does it mean that I have until 80 years old to completely withdraw my SRS? Thank you.

 

[limster]

Can I delay SRS withdrawal until 70? Does it mean that I have until 80 years old to completely withdraw my SRS? Thank you.

https://www.iras.gov.sg/irashome/In...etirement-Scheme--SRS-/Tax-on-SRS-withdrawal/
Example 2 seems to cover your question:

Date of birth of SRS member B is on 1 Mar 1956. He started his first penalty-free withdrawal on 1 Apr 2020 (at age 64). The prescribed retirement age prevailing at the time of his first SRS contribution is 62 years old. He can spread his withdrawals until he reaches the age of 74 as follows

 

[dgeralds]

https://www.iras.gov.sg/irashome/In...etirement-Scheme--SRS-/Tax-on-SRS-withdrawal/
Example 2 seems to cover your question:

Date of birth of SRS member B is on 1 Mar 1956. He started his first penalty-free withdrawal on 1 Apr 2020 (at age 64). The prescribed retirement age prevailing at the time of his first SRS contribution is 62 years old. He can spread his withdrawals until he reaches the age of 74 as follows

Thank you very much.

 

[BBCWatcher]

Can I delay SRS withdrawal until 70? Does it mean that I have until 80 years old to completely withdraw my SRS? Thank you.

Expanding on the earlier reply, if you wish you can avoid making SRS withdrawals for the rest of your life.

 

[ExEngineer]

Expanding on the earlier reply, if you wish you can avoid making SRS withdrawals for the rest of your life.

This hadn’t occurred to me but is interesting....so if there no mandatory age to begin withdrawing SRS, and provided you don’t need the money, one can leave it there invested in some form until you die, then let it the money pass on to your beneficiaries tax free?

 

[BBCWatcher]

If the SRS account holder (a Singaporean citizen, let’s assume) has not made any withdrawals, and if the account holder dies, there will be no income tax due unless the total SRS account value is >$400,000. That’s regardless of when the SRS account holder dies. Pretty nice (except the death part), isn’t it?

 

[ExEngineer]

If the SRS account holder (a Singaporean citizen, let’s assume) has not made any withdrawals, and if the account holder dies, there will be no income tax due unless the total SRS account value is >$400,000. That’s regardless of when the SRS account holder dies. Pretty nice (except the death part), isn’t it?

What happens if the amount is over 400k?

 

[BBCWatcher]

What happens if the amount is over 400k?

There will be some income tax due to IRAS on the amount above $400K because death triggers a “deemed withdrawal.”

 

[ExEngineer]

There will be some income tax due to IRAS on the amount above $400K because death triggers a “deemed withdrawal.”

Any idea if they treat that as one lump sum withdrawal?
Or do they assume it’s spread over 10 years?
And whose income tax return does it apply to...the recently-departed?

 

[BBCWatcher]

Any idea if they treat that as one lump sum withdrawal?
Or do they assume it’s spread over 10 years?
And whose income tax return does it apply to...the recently-departed?

Let’s suppose the total SRS account value on the date of death is $525,000, and the account holder has made no withdrawals. My understanding is that income tax would apply at standard rates to that remaining $62,500 (50% of the amount above $400,000).

Yes, this income tax is calculated per the decedent’s income, not the heir’s.