Tax Relief

Do you have to high up your CPF for tax relief?

There are some Singaporeans who are vehemently committed to the GiveMeBackMyCPF team, while others are just as evangelical when it comes to sending MORE money to their CPF to earn those sweet interest rates.

However, if you are still unsure whether topping up your CPF is a good idea, this article will explain the pros and cons.

Note: Topping up your CPF entitles you to a tax break, which prevents some of your hard-earned money from going into the state coffers.

Why is CPF being charged?

Technically, you can make voluntary top-ups in order to all of your CPF accounts – Your ordinary account (OA), special account (SA), Medisave account or pension account (RA) if you are 55 years of age or older.

However, you can only take advantage of tax breaks for top-ups SA / RA or MediSave account, that’s what we’re focusing on here.

There are 3 main reasons to fund your CPF accounts:

1) Withdrawals in retirement: When you have more money in your SA or RA, increase your CPF LIFE retirement payments when you are finally old enough to receive them. The money in these accounts cannot be used for residential purposes, so they will earn interest on the account until you are eligible to make withdrawals.

2) Interest rates: CPF offers virtually risk-free interest rates on all of your CPF savings, but the SA and MediSave receive higher interest rates than the OA. The interest rate for RA, SA and MediSave is currently 4%, with an additional 1% on the first $ 60,000 (and an additional 1% on the second tranche of $ 30,000 for those over 55) of the combined balances on all of your CPF- Accounts.

3) Tax relief: You can reduce your taxable personal income by topping up your own SA or RA or those of your family members and your own MediSave account.

What’s the downside? Once you’ve transferred your money to your SA, RA or MediSave account, it will stay there forever until you can make a withdrawal or claim. You cannot transfer the money to your OA (even if you originally sent it from your OA), nor can you use it for living.

The story goes on

How Much Tax Relief Can You Get on CPF Top-ups?

You can receive tax breaks on voluntary contributions to your SA / RA and MediSave accounts.

1) CPF Cash Facilitation (SA / RA)

You are entitled to a maximum of $ 7,000 in tax relief when making voluntary CPF reloads for your own SA / RA.

You are also entitled to contributions up to a value of $ 7,000 to the SA or RA from the following types of family members:

However, spouses or siblings must not have had annual income greater than $ 4,000 in the year prior to the increase, including non-taxable income such as bank interest, dividends and overseas income. Otherwise you will not receive your tax break.

The tax break will be deducted from your taxable income. So if your taxable income is $ 50,000 and you top up $ 7,000 for your SA and $ 7,000 for a parent’s RA, you only need to pay tax on your income of $ 36,000 ($ 50,000 – $ 7,000 – $ 7,000).

2) Tax relief for voluntary Medisave contributions

You will also receive tax relief for voluntary MediSave contributions.

The maximum amount of tax relief you can take is calculated using the lowest of the 3 criteria:

  • The amount of voluntary cash that you have transferred to your MediSave account

  • Your annual CPF contribution cap for the year minus the mandatory contributions paid by your employer or you as a self-employed person

  • The Basic Benefit Amount ($ 63,000 in 2021) minus your Medisave account balance before making your voluntary contributions

What are the CPF recharge limits?

There is a cap of $ 80,000 on the amount of tax relief You can get a total of each year, although you can top up your CPF beyond that.

Aside from the tax break limits, however, there are also some top-up limits that the CPF Board of Directors imposes regardless of whether they are tax breaks.

The annual CPF limit is a cap on how much money can be deposited into your CPF accounts each year. It includes all contributions made in one year, whether compulsory or voluntary, across all CPF accounts.

the Annual CPF limit is $ 37,740 in 2021.

So if your CPF contributions from work (employer and employee) are $ 25,000 per year, you can only top up $ 12,740 before exceeding the annual CPF limit.

How to load your CPF. on

To fund any or all of your CPF accounts, log into the CPF website with your SingPass.

After logging in, click [My Requests > Building Up My / My Recipient’s CPF Savings]

You can then choose your preferred option. If you want to send money to your SA or RA right away, choose one of the first two options: [Contribute to my / my recipient’s Retirement Account via PayNow QR or eNETS] or [Contribute to my / my recipient’s Special Account via PayNow QR or eNETS].

You will then be directed to the e-checkout.

Choose [Paying as a Member].

Next, choose [Top up own/recipient’s SA under the Retirement Sum Topping-Up scheme] or [Top up own/recipient’s RA under the Retirement Sum Topping-Up scheme] when you recharge your SA or RA, and [Contribute to my MediSave (Tax deductible)] when you charge MediSave.

Remember, top-ups from your OA do not qualify for tax breaks. So make sure you don’t accidentally select “Contribute to my three CPF accounts” at the e-cashier unless you really want to.

click [Next] and enter the amount you want to transfer, then make the payment via PayNow or eNETS.

top: To save yourself from a lot of frustration and keyboard pops, disable all pop-up blockers and, if necessary, increase the payment limits of your bank account before going through this entire process.

How to top up CPF for your parents

The procedure for recharging your parents’ CPF-RA is almost the same as recharging your own SA or RA.

Sign in to the CPF website with your SingPass and click [My Requests > Building Up My / My Recipient’s CPF Savings]

You then choose the first option: [Contribute to my / my recipient’s Retirement Account via PayNow QR or eNETS] from the options available.

When you are directed to the e-cashier, you will see your own NRIC number filled in under “CPF account number / NRIC of the payer”. Replace it with your parent’s NRIC number.

Next, choose [Paying as a Member] and choose the payment method [Top up own/recipient’s RA under the Retirement Sum Topping-Up scheme].

Click Next and enter the amount you want to transfer and then make the payment via PayNow or eNETS.

Should you fund your CPF account?

Thanks to the super generous, almost risk-free interest rates, it can be quite smart to top up your SA early on in life and then let the money grow over the years with the help of compound interest. the Tax relief is just the icing on the cake.

The downside is that the money in your SA will stay trapped there until you qualify for withdrawals. So you want to make sure you can afford to let the money sit there. If you have high interest debt like credit card balances, pay them off before you lock your money in your SA.

In my opinion, MediSave top-ups are not as useful as SA top-ups, so your compulsory contributions from work should be sufficient. It would make more sense to supplement your MediShield Life with an Integrated Shield Plan.

What if transferring cash to your SA is too much of a long term commitment, but you still want to top up your cash for retirement? You then have to find another way to invest your money.

Another option is to log into the Supplementary Pension System (SRS)that is tax-privileged and allows you to withdraw your money if necessary and offer tax-free investment income until withdrawal.

If you are concerned that you will need some of your cash to buy a house, you can fund all 3 accounts so that some cash can flow into your OA and be tapped for property. You can later transfer funds from your OA to your SA, with the maximum amount that you can keep in your SA being the full retirement amount ($ 186,000 in 2021), minus any SA funds received under the CPF investment program.

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The post CPF Top Up Guide: Should You Top Up Your CPF For Tax Relief? first appeared on the MoneySmart blog.

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