As we strategy the top of yet one more 12 months, the subject of SRS — brief for Supplementary Retirement Scheme — will undoubtedly begin to seem. That is additionally the prime time when SRS suppliers begin to supply promotions to open an account.
What’s the Supplementary Retirement Scheme?
The Supplementary Retirement Scheme (SRS) is a voluntary scheme to assist Singaporeans, PRs and foreigners save up for retirement. This goes past the obligatory CPF financial savings we’ve got put aside in our CPF accounts.
To incentivise Singaporeans, SRS contributions are eligible for tax reduction and could be invested in a wide range of merchandise.
Why individuals open an SRS account
Opening an SRS account can assist Singaporeans, PRs and foreigners to save lots of on earnings tax — the largest enchantment of the SRS account.
Each greenback you set in your SRS account is tax deductible, up till the contribution cap of $15,300 for Singaporeans and PRs, and $35,700 for foreigners.
Whether or not you favor to prime up your SRS account on the finish of the 12 months, or on the very begin, these contributions to your SRS account could be made at any time of the 12 months.
A tip: You may wish to do it on or earlier than 31 December in an effort to get pleasure from tax reduction within the following 12 months of evaluation.
How a lot are you able to save with the SRS tax reliefs?
For instance, in case your taxable earnings for the 12 months is $100,000, by contributing $15,300 to your SRS account, your taxable earnings drops to $84,700. Primarily based on the IRAS income tax rates, right here’s how a lot tax you’ll be paying.
|Chargeable earnings of $100,000 (with out SRS contribution)||Gross tax payable||Chargeable earnings of $84,700(SRS contribution of $15,300)||Gross tax payable|
|First $80,000||$3,350||First $80,000||$3,350|
|Subsequent $20,000 (11.5 per cent)||$2,300||Subsequent $4,700 (11.5 per cent)||$540.50|
|Whole tax payable||$5,650||Whole tax payable||$3,890.50|
This implies precise tax financial savings of $1,759.50 — greater than sufficient to pay on your subsequent procuring spree. You may even develop these tax financial savings by channeling them to your current investments.
In addition to lowering tax, an SRS account can be an amazing device that will help you develop your nest egg. With the cash contributed to your SRS, you may faucet on all kinds of funding merchandise to raised put together for a cushty retirement.
What are you able to put money into?
The cash in your SRS account will earn simply 0.05 per cent p.a. To develop these funds, you should use them to put money into merchandise comparable to:
- Unit trusts/mutual funds
- Change Traded Funds (ETFs)
- Single-premium insurance coverage (each annuity and non-annuity plans)
- Sure life insurance coverage merchandise
- Fastened deposits
You too can take into account robo-advisors comparable to Endowus, StashAway and Syfe that help you make investments with them utilizing your SRS cash. These robo-advisors supply a variety of portfolios that are well-diversified, at low value.
6 tricks to maximise your SRS account
#1 Open and prime up $1 to your SRS account as we speak
Whereas retirement may very well be a distance away, the 12 months we make our contribution to our SRS account issues, because it impacts the 12 months by which we will withdraw our SRS funds. Your SRS funds could be withdrawn with out penalty upon the prevailing statutory retirement age if you made your first SRS contribution.
When you’ve heard of the concept to prime up $1 to your SRS account, right here’s the rationale why:
It was introduced final 12 months that the retirement age will probably be raised from 62 to 63 in 2022 and additional elevated to 65 by 2030. What this implies is, if you wish to withdraw your SRS cash on the retirement age of 62, you need to make your first contribution to your SRS account earlier than 2022 — the 12 months when retirement age will formally improve.
Since you may contribute any quantity to your SRS account (as much as your SRS contribution cap), this contribution may very well be as little as $1. So why delay the age in which you’ll be able to withdraw with out penalty, when you may guarantee an earlier retirement age with a small contribution as we speak?
#2 High up the utmost of $15,300 a 12 months
The extra you prime up, the extra tax financial savings you get pleasure from. Because the 12 months involves a detailed, why not maximise the quantity of tax financial savings you may get pleasure from by bolstering your SRS account? Singaporeans and PRs can contribute as much as $15,300 to their SRS accounts whereas foreigners can contribute as much as $35,700.
Whereas tax financial savings are interesting, this could solely be finished when you may afford it, particularly since early withdrawals will incur a 5 per cent penalty.
#3 Plan and unfold out your withdrawals
As early withdrawals incur a 5 per cent penalty and are 100 per cent taxable, you need to look to withdraw out of your SRS account solely upon the statutory retirement age. Withdrawals after the retirement age are taxable at 50 per cent and could be withdrawn over a interval of 10 years.
You may plan and stagger your withdrawals throughout the ten years to cut back (and even remove) the quantity of tax it’s important to pay with every withdrawal. There isn’t a minimal or most withdrawal quantity imposed.
You must also take into account making withdrawals solely after you might have retired and have stopped incomes an earnings. You probably have no different supply of taxable earnings, the primary $20,000 of your whole annual earnings is tax-exempted.
Within the excellent state of affairs, should you withdraw $40,000, solely $20,000 is taxable (at 50 per cent), and with no various earnings stream, you successfully haven’t any taxes to pay for the 12 months.
#4 Go for investments that complement your present portfolio
Your SRS returns would depend upon the investments you make. When investing your SRS funds, you may reexamine your funding portfolioto see which funding gaps your SRS may fill.
For instance, in case your SRS funds are used for an annuity plan for retirement, you may choose to make use of your money available to put money into equities in an effort to unfold your eggs throughout a number of baskets. This could in the end boil right down to your threat urge for food and funding objectives.
In contrast to money, the funding choices accessible on your SRS funds are extra limiting. Take robo-advisors, for instance. Not all robo-advisors help you make investments along with your SRS cash.
#5 Stash it in money administration accounts
Any money sitting idle in your SRS account earns a measly 0.05 per cent p.a. Money administration accounts comparable to Endowus Money Good and StashAway Simple supply projected returns of 1.4 per cent to 1.9 per cent p.a. This generally is a good stop-gap possibility when pondering over which funding car to place your SRS funds in.
Whereas the returns supplied by money administration accounts isn’t assured, it’s much better than the 0.05 per cent p.a. whereas providing liquidity and low threat.
#6 Not all withdrawals should be made in money
You may take into account making non-cash withdrawals by transferring the funding out of your SRS account and into your Central Depository (CDP) account.
This feature means that you can keep away from liquidating your SRS investments and in addition means that you can maintain your SRS investments exterior of the SRS scheme, notably necessary throughout instances when markets are down.
Nevertheless, that is solely relevant for the next sorts of withdrawals, which qualify for the 50 per cent tax concession:
- Withdrawal on or after the statutory retirement age prevailing on the time of an SRS member’s first contribution
- Withdrawal on medical grounds
- Withdrawal in full by a foreigner who has maintained his SRS account for at the least 10 years from the date of his first contribution
There are additionally exceptions to those funding withdrawals. The next withdrawals can solely be in money:
- Withdrawals on the grounds of chapter
- Withdrawals earlier than the statutory retirement age
- Withdrawals of contributions in extra of the SRS contribution cap
Limits to your SRS contributions
Tax financial savings are at all times welcomed. Nevertheless, there’s a restrict to how a lot tax financial savings you may get pleasure from by contributing to your SRS. There are two limits so that you can pay attention to:
- Yearly SRS contribution restrict: Singaporeans and PRs can contribute as much as $15,300 to their SRS accounts whereas foreigners can contribute as much as $35,700 every year.
- Private earnings tax reduction cap: $80,000 — the utmost quantity of tax reduction you may get pleasure from every Yr of Evaluation, together with reduction on SRS contributions.
As there is no such thing as a refund for SRS contributions made, you need to preserve these caps in thoughts earlier than making your SRS account contributions. Learn this text to search out extra methods to cut back your tax in Singapore.
Drawbacks of the SRS account
Whereas tax saving is the principle promote of SRS contributions, there are a few cons to maintaining your cash right here, particularly if you don’t make investments these funds.
Low liquidity: Your cash can’t be withdrawn until the statutory retirement age. This retirement age may change relying on if you first make your SRS contribution.
Early withdrawal of your SRS funds ends in a penalty of 5 per cent and are additionally 100 per cent taxable, negating the aim of contributing to your SRS within the first place. Early withdrawals are additionally allowed solely in money.
Nevertheless, there are particular eventualities that help you withdraw your SRS cash and not using a penalty imposed, comparable to these on medical grounds, loss of life or chapter.
Foreigners may withdraw in full with no penalty if they’ve maintained their SRS account for at the least 10 years from the date of the primary contribution. For these withdrawals, 50 per cent of the withdrawal quantity will nonetheless be taxable.
Withdrawals post-retirement age stay taxable: Your contributions will nonetheless be taxed — albeit halved at 50 per cent — if you withdraw your SRS funds. Not fairly tax-free.
0.05 per cent p.a. rate of interest: Like your on a regular basis financial savings account, your SRS account will do not more than generate 0.05 per cent p.a., removed from defending your money towards inflation.
High up SRS or CPF Particular Account?
Making contributions to your SRS and topping up your CPF Particular Account (SA) are each methods to decrease your taxable earnings in Singapore. CPF SA prime ups get pleasure from dollar-for-dollar tax reduction.
Listed below are the important thing causes and variations between these two choices:
|SRS contributions||CPF Particular Account (SA)|
|Most tax reduction||Singaporeans/PRs: As much as $15,300 Foreigners: As much as $35,700||
High ups for your self: As much as $7,000
High ups on your family members: As much as $7,000
|Curiosity returns||Will depend on what you put money into. Cash in your SRS account, not invested, earns simply 0.05 per cent p.a.||4 per cent p.a. (as much as 5 per cent p.a. on your first $60,000 of mixed CPF balances)|
|Withdrawal age||Will depend on the statutory retirement age when your first contribution was made. Presently, the retirement age is 62 years outdated.||You can begin making withdrawals from age 55. How a lot you may withdraw would depend upon the balances in your CPF account.|
In case your funds allow, who’s to say you may’t do each? To maximise the tax financial savings you get pleasure from, you may contribute to your SRS in addition to prime up your CPF SA. This lets you get pleasure from extra tax reduction, up until the private earnings tax reduction cap of $80,000.
When you’ve already hit the cap, you may take into account holding on to your money, both in a high-yield financial savings account, in an insurance coverage financial savings plan, money administration account or to develop your investments.
How you can open an SRS account and contribute
You first should fulfill the eligibility necessities:
- No less than 18 years of age;
- Not an undischarged bankrupt;
- Not affected by a psychological dysfunction; and
- Able to managing your self and your affairs.
You may solely open an SRS account with any of those three suppliers: DBS, OCBC or UOB. Purposes could be totally finished on-line by way of iBanking. Nevertheless, not like brokerage accounts, it’s possible you’ll not have a couple of SRS account at any time limit.
Supplementary Retirement Scheme (SRS) promotions
To additional incentivise you to get began, listed below are the present SRS account opening promotions accessible:
- DBS: Rise up to $100 money if you open an SRS Account on-line, prime up and make investments.
- OCBC: Get a $50 FairPrice e-Voucher if you open an SRS Account and contribute a minimal of $10,000. This promotion is restricted to the primary 2,000 clients and ends Dec 31, 2020.
When you’re nonetheless on the fence in regards to the SRS account, understand that the change to the statutory retirement age is quick approaching. With no value to opening an SRS account (and even getting rewarded for opening and investing your SRS cash), now’s time as ever to start out your SRS investments.