Last updated: March 2024
Key Takeaways:
- Topping up your CPF Special Account (SA) with cash can lead to tax relief.
- This strategy benefits long-term retirement planning and immediate tax savings.
- Understanding the rules and limits is essential for maximizing these advantages.
Introduction:
Maximizing your financial strategy in Singapore can include leveraging your CPF Special Account. This concise overview explains how cash top-ups to your CPF SA can not only enhance your retirement nest egg but also provide welcome income tax relief.
Featured Snippet:
Can topping up your CPF Special Account (SA) with cash reduce your income tax in Singapore? Yes, cash top-ups to your CPF SA are eligible for tax relief, subject to certain conditions and caps, thereby offering a dual benefit of tax savings now and increased retirement funds for the future.
Top-Up Statistics
In 2015, CPF account holders topped up their families’ CPF accounts by $649.9 million, 32% more than in 2014. CPF account holders also transferred $289.1 million of their own money from their Ordinary Account (OA) to their Special Account (SA), an increase of 12% from 2014.
Retirement Sum Top-Up Scheme
A scheme that allows you to top up your own CPF account or/and your family members.
Under this scheme, your employer can also voluntary contribute more into your CPF to be eligible for tax deduction.
The money goes into Special Account if the fund receiver (yourself or/and your family members) is below age 55.
The money goes into Retirement Account if the fund receiver is age 55 or above.
When you perform a cash top up for yourself or your family members, you are eligible for tax relief of up to $14,000 per calendar year. However, top up above the Full Retirement Sum (FRS) are not eligible for the tax relief. This means that if you intend to top-up till the Enhanced Retirement Sum (ERS), the difference between FRS and ERS is not eligible for tax relief.
Topping Up Spouse’s CPF Account
You may top up your spouse’s CPF account using your CPF money or cash.
If you are using cash, refer to the ‘Retirement Sum Top-Up Scheme’.
For top ups using your CPF funds, you may transfer funds in excess of the prevailing Basic Retirement Sum (BRS) or your cohort’s BRS to your spouse’s CPF account.
This transfer however, does not qualify for tax relief.
Assuming that you have met the prevailing BRS while your spouse has less than $60,000 in his/her CPF account, transferring the funds in excess of your BRS to them will increase the net interest both of you will receive in total.
Read also: How to invest your CPF funds in Singapore?
Earning Higher Interest
Excess funds lying in your OA can be transferred to your SA in order to earn a higher interest.
Currently, the SA pays an interest of up to 6% while OA pays up to 4.5% in interest.
Moreover, the earlier you top up, the more interest your CPF funds will earn; allowing the interest you earn to compound over time. You could even set up a GIRO account to transfer money from your bank account to your CPF account periodically (monthly to annually).
Investing your CPF Monies
There are several restrictions as to how much you can invest using your CPF money.
Only funds in excess of $20,000 in your OA and $40,000 of SA can be used for investments.
While there has been reports recently that CPF account holders are better off if they had left their money in CPF than to invest it, these reports often tend to forget that timeline plays a very important role in determining investment success.
Read also: Things you MUST know about using CPF for Housing Loan
In the short-term, the CPF accounts can provide a smooth and consistent return on your money while stocks tend to be more volatile and can result in paper losses.
However, in the long-term, stocks provides the best returns out of most assets classes. The key thing here is to diversify and hold it for the long-term instead of trading in and out of the market. Buying into an index fund (like STI index fund) and holding it over the long-term can actually provide you with better returns than CPF’s interest. The emotional temperament you must have to hold during the down times is more paramount than anything else.