CPF contributions >$7000

[brian_singapore]

Quick question, I topped up my CPF contribution by $7000. E-Cashier then gave me a message saying I was able to contribute more then $7000 but would not receive a tax credit for any contribution in excess of $7000.

Does this mean in theory I could make a contribution of $100,000 if I was fortunate to have this lying around and it would become part of my CPF SA earning CPF interest tax free?

I have spent time on the CPF pages and FAQs but find myself going in circles a bit.

[PNGMK]

There are three caps in play and frankly both the IRAS and CPF do a lousy job of laying it out. So here's my take - IANAL IANACPA

1. Total maximum contributions per year (aka CPF Annual Limit) which is the sum of EE and ER on your payslip PLUS cash top up total is $37,740 in YA17. CORRECT

2. Total tax relief of $7,000 for cash to SA is available for < 55 if you SA is less than FRS ($166k). You can still cash top up CPF to the Annual limit to MA and OA. In general terms you should only need to top up if you're not getting bonuses or AWS OR you are being paid less than $6,000 pm OR if you're older and your contribution rates have dropped. CORRECTED.

In short,sum up your total EE and ER contributions through the year (remember AWS and some bonuses are also included) and determine the difference between $37,740 and what you have contributed. Your SA balance determines if you have tax relief available up to $7k. I run this in a monthly S/S using my payslip data and at 52 with bonuses there is no need to top up to achieve a tax deduction AS I AM OVER FRS in my SA and have been for some years. CORRECTED.

3. Total Tax Relief cap of $80,000 in YA18 - you may get close what you add in everything esp SRS deduction if you're a foreigner. CORRECTED.

4. Also somehow the FRS sum comes into play. No tax deduction if your SA or RA above FRS. CORRECTED.

Personally I find the SRS tax deduction of $15,300 at your top marginal tax rate far more attractive than the CPF relief as there is no variation and it's easy to do on the last few days of the year (drop a cheque into your SRS account). Google SRS if you don't know what it is. It's a fantastic rate of return. CORRECTED.

One thing to keep in mind as you get close to 55 is that the personal tax relief jumps up but there is a drop (significantly so) in CPF contribution rates. Also though remember that post 55 you no longer have an OA but only a RA to contribute to. I am not certain yet of the advantage of topping up in cash post 55 (I'm 53) although with the high personal tax relief and lower CPF rates it may make some sense. TBD.

To answer your question about contributing $100,000 - CPF will refund the difference between the max contribution cap and what you put in, if you try. It's happened to me before. Be very careful as if you over contribute the money might go back to employer and not you! (long long story).

[brian_singapore]

Thanks, this was very helpful.

I was planning on contributing to an SRS this year as well. I didn't realize the tax treatment was different to that of CPF.

Brian

[GSM8]

Personally I find the SRS tax rebate of ~$1000 far more attractive than the CPF relief as there is no variation and it's easy to do on the last few days of the year (drop a cheque into your SRS account). Google SRS if you don't know what it is. It's a fantastic rate of return.

How is SRS tax rebate ~$1000? From what I recall, one can contribute $15,300/year (more if on EP). Contribution is fully tax deductible, subject to the $80,000 deduction limit, and interest/gains are tax free. After that, penalty free withdrawals are only after 62, and 50% subject to tax (be it lump sum or annuity). Agreed that its not presented too clearly on CPF etc websites

Of course all the above is worth squat if one holds a US passport. Speak of dog in the manger

[PNGMK]

Personally I find the SRS tax rebate of ~$1000 far more attractive than the CPF relief as there is no variation and it's easy to do on the last few days of the year (drop a cheque into your SRS account). Google SRS if you don't know what it is. It's a fantastic rate of return.

How is SRS tax rebate ~$1000? From what I recall, one can contribute $15,300/year (more if on EP). Contribution is fully tax deductible, subject to the $80,000 deduction limit, and interest/gains are tax free. After that, penalty free withdrawals are only after 62, and 50% subject to tax (be it lump sum or annuity). Agreed that its not presented too clearly on CPF etc websites

Of course all the above is worth squat if one holds a US passport. Speak of dog in the manger

You're absolutely right about SRS and I apologize. I don't know why I had that number in my head. I dug up my last NOA to check and I was given a $15,300 deduction off my taxes which at the top marginal rate I was taxed at (19.5%) = $2,983.50 in savings. It's considerably more than I thought and is an effective 19.5% straight line return (but of course less on the total I have which is ~$150,000 - there it's worth 2%. Perhaps I had a figure in mind from 15 years ago when I started with SRS and calculated the tax savings.) Note for a foreigner tax resident the amount claimable is more than doubled ($35,700)and if you're in a high band like 20% that's whopping $7,140 tax deduction. In fact it may pull you down a tax bracket....

[PNGMK]

Thanks, this was very helpful.

I was planning on contributing to an SRS this year as well. I didn't realize the tax treatment was different to that of CPF.

Brian

https://www.drwealth.com/srs-singapore/

Good info.

Also I think I've got some wrong info above - in fact quote wrong although I am right about the max CPF contribution cap.

See https://www.iras.gov.sg/irashome/Indivi ... up-Relief/

1. Max cash top up deduction of $7000 per year to CPF SA.
2. Subject to limits on the SA based on Full Retirement Sum ($166,000 less your SA account is all that's permitted to be claimed in absolute total). That's the reason I cannot top up. I just didn't remember (my SA >> $166,000 for quite a few years now).

You CAN top up your CPF MORE than the $7000 (to MA or OA) but it's not tax deductible AND there is still the overall cont limit.

In summary I stand by my contention that SRS is a simpler and more rewarding scheme than cash top ups for CPF.

[GSM8]

Personally I find the SRS tax rebate of ~$1000 far more attractive than the CPF relief as there is no variation and it's easy to do on the last few days of the year (drop a cheque into your SRS account). Google SRS if you don't know what it is. It's a fantastic rate of return.

How is SRS tax rebate ~$1000? From what I recall, one can contribute $15,300/year (more if on EP). Contribution is fully tax deductible, subject to the $80,000 deduction limit, and interest/gains are tax free. After that, penalty free withdrawals are only after 62, and 50% subject to tax (be it lump sum or annuity). Agreed that its not presented too clearly on CPF etc websites

Of course all the above is worth squat if one holds a US passport. Speak of dog in the manger

You're absolutely right about SRS and I apologize. I don't know why I had that number in my head. I dug up my last NOA to check and I was given a $15,300 deduction off my taxes which at the top marginal rate I was taxed at (19.5%) = $2,983.50 in savings. It's considerably more than I thought and is an effective 19.5% straight line return (but of course less on the total I have which is ~$150,000 - there it's worth 2%. Perhaps I had a figure in mind from 15 years ago when I started with SRS and calculated the tax savings.) Note for a foreigner tax resident the amount claimable is more than doubled ($35,700)and if you're in a high band like 20% that's whopping $7,140 tax deduction. In fact it may pull you down a tax bracket....

Speaking of SRS, we are looking for investment options for some amount lying "idle" in our (my wife and my) SRS accounts and had a few doubts:
1. The banker at UOB said that our SRS funds can only be invested in unit trusts (aka mutual funds) and insurance (but not in stocks or fixed deposits) - this doesn't seem intuitive, is this correct?
2. We are considering unit trust investment for my wife (although I can not, being American and hence subject to PFIC due to CBT). For such unit trusts, the bank online portal says the front end sales load is 5%, but the banker at the branch said they are allowed to sell them at a concessional 3% load - but even this number seems high when in US the norm is zero load (even in India it is zero load I understand). I did see some online portals in Singapore that claim to let clients invest for zero sales fee but there didn't seem to be any way to do SRS investments with them. Are we bound by front end load via the bank then?

Appreciate any tips from people who've encountered similar.

[PNGMK]

How is SRS tax rebate ~$1000? From what I recall, one can contribute $15,300/year (more if on EP). Contribution is fully tax deductible, subject to the $80,000 deduction limit, and interest/gains are tax free. After that, penalty free withdrawals are only after 62, and 50% subject to tax (be it lump sum or annuity). Agreed that its not presented too clearly on CPF etc websites

Of course all the above is worth squat if one holds a US passport. Speak of dog in the manger

You're absolutely right about SRS and I apologize. I don't know why I had that number in my head. I dug up my last NOA to check and I was given a $15,300 deduction off my taxes which at the top marginal rate I was taxed at (19.5%) = $2,983.50 in savings. It's considerably more than I thought and is an effective 19.5% straight line return (but of course less on the total I have which is ~$150,000 - there it's worth 2%. Perhaps I had a figure in mind from 15 years ago when I started with SRS and calculated the tax savings.) Note for a foreigner tax resident the amount claimable is more than doubled ($35,700)and if you're in a high band like 20% that's whopping $7,140 tax deduction. In fact it may pull you down a tax bracket....

Speaking of SRS, we are looking for investment options for some amount lying "idle" in our (my wife and my) SRS accounts and had a few doubts:
1. The banker at UOB said that our SRS funds can only be invested in unit trusts (aka mutual funds) and insurance (but not in stocks or fixed deposits) - this doesn't seem intuitive, is this correct?
2. We are considering unit trust investment for my wife (although I can not, being American and hence subject to PFIC due to CBT). For such unit trusts, the bank online portal says the front end sales load is 5%, but the banker at the branch said they are allowed to sell them at a concessional 3% load - but even this number seems high when in US the norm is zero load (even in India it is zero load I understand). I did see some online portals in Singapore that claim to let clients invest for zero sales fee but there didn't seem to be any way to do SRS investments with them. Are we bound by front end load via the bank then?

Appreciate any tips from people who've encountered similar.

The investment choices for SRS are limited by govt regulations and also what the bank will let you do. I ended up buying into trusts from Great Eastern with mine about 5 years ago. The returns are so-so. For about 10 years I treated SRS as purely a zero return cash reserve against deflation. (And yes, Great Eastern front loaded commissions are also about that much plus there's a spread between bid and sell. SRS is really only good for a long buy and hold strategy).

[GSM8]

The investment choices for SRS are limited by govt regulations and also what the bank will let you do. I ended up buying into trusts from Great Eastern with mine about 5 years ago. The returns are so-so. For about 10 years I treated SRS as purely a zero return cash reserve against deflation. (And yes, Great Eastern front loaded commissions are also about that much plus there's a spread between bid and sell. SRS is really only good for a long buy and hold strategy).

Thanks for sharing that info, PNGMK. One thing that strikes me about SRS though is that in certain scenarios it may end up not being a tax saving vehicle at all - Granted one takes a deduction of the entire $15.3K contribution and it grows tax free till withdrawal after 60. But at that point, 50% of the appreciated amount is taxable as ordinary income. Say returns were good and the value has, say, tripled by then (actually, anything more than doubled) - in such a case 22.95K of income (i.e. 0.5 x 3 x 15.3) would be taxable in the year of withdrawal - of course this takes into account several simplifications like lump sum withdrawal and one time contribution etc. But my point is that SRS is not a sure shot tax saving vehicle compared to a non-tax sheltered account given that interest, dividends and cap gains are all non-taxable in Singapore. Please correct me if there is an error in this reasoning.

[PNGMK]

Interest and dividends are taxable though. I doubt I'll make enough returns on my SRS to make it an issue. It's a form of forced savings for me.

[GSM8]

Interest and dividends are taxable though. I doubt I'll make enough returns on my SRS to make it an issue. It's a form of forced savings for me.

Agreed, my example was a tad edge case. But the reasoning still appears to hold since per IRAS, most interest and dividends (including from REIT, unit trusts, ETF) are non-taxable in Singapore
https://www.iras.gov.sg/irashome/Indivi ... Dividends/

[PNGMK]

Interest and dividends are taxable though. I doubt I'll make enough returns on my SRS to make it an issue. It's a form of forced savings for me.

Agreed, my example was a tad edge case. But the reasoning still appears to hold since per IRAS, most interest and dividends (including from REIT, unit trusts, ETF) are non-taxable in Singapore
https://www.iras.gov.sg/irashome/Indivi ... Dividends/

I did not know that. Interesting. I feel ashamed for not having researched it better. I should have realized that sensible Singapore will not double tax dividends (as a dividend is a post tax payment by the corporation anyways) or interest on Singapore banks.

[PNGMK]

Just an update on this having done my taxes today and having seen the effect of contributions last year.

I have hit the ERS amount in my CPF RA account. That means any contributions (voluntary or compulsory) end up being split between the SA and OA on a roughly 13/77 basis (if the MA account is up to date at the current limit of 63k), my plan now at > 55 YO (while earning a salary) is;

A. Top up MA to the new prevailing limit on Jan 1 to get full tax deductible amount (and top up to 63k through out the year if any deduction occurs on your MA up to 7k).
B. Use cash to top up to the new ERS limit every year on Jan 1 (note - if you don't use cash and try to top up within your CPF account they will use your SA account first).
C. EE / ER contributions to CPF till count as tax deductions (i.e. straight off your income) - I truly don't understand the logic here though for VC - I know there is a limit but don't understand it. I contributed to the limit last year (37,740 or so between EE, ER and VC) but I assume I did not get the full benefit as a tax deduction as it appears none of my VC counted as a tax deduction. I am not sure I will do a VC top up this year to the limit as a result (2021 CPF limit remains at 37,740) - I may actually keep the money in the market instead. Note that claiming insurance premiums becomes moot once your have contributed over 5k either as EE/ER/VC.

At 55 YO our earned income relief jumps from 1k to 6k which helps offset the drop off in ER CPF contributions from our employer. Unfortunately I have ended up again in one of the higher brackets even with this tax planning - there really is limited scope to reduce tax here now (and the 80k cap on total deductions is a clear effort by the gahmen to knock out any left field attempts at it).

However PTL and pass the sauce - GSM8 remains on point that overseas Capital Gains and Dividends remain untaxed here! Put your money into a market where the withholding tax is low OR the ETF is an accumulating type (so as to avoid with holding taxes on distributions).