Ever since I started working, I've dreamed of retirement. So heSupplementary Pension Plan (SRS)As dry as it sounds, I find it more interesting than a Uniqlo sale.
The SRS is a government program set up to help Singaporeans prepare for retirement (in conjunction with the CPF). But as with all things set by the government, it may not be suitable for everyone and can be quite restrictive. Here's everything you need to know about the program and how to sign up.
What is supplementary pension provision?
The Complementary Retirement Regime (SRS) is a voluntary savings program designed to prepare you for retirement.
But wait, don't we already have CPF?Well, CPF is an involuntary savings plan and is only meant to provide you with a very basic retirement income that may not be enough for a more sophisticated lifestyle. With many people draining their CPF accounts to buy homes, there may be some Singaporeans who cannot rely on CPF to fund their retirement.
That's where theSRS (Supplementary Pension Plan) enters. Simply put, it is an account in which you can invest your retirement savings.
as an incentive,SRS contributions can be tax-deductible in the following year. So if you contribute to your SRS account by December 31, 2022, you can receiveTax relief in the assessment year 2022(which will be presented in 2023).
However, you cannot contribute all of your income and exit tax-free as there is a $15,300 contribution limit for Singaporeans and PRs.
Unlike CPF, you can withdraw the funds deposited into your SRS account at any time. However, this is not without negative consequences. If you withdraw early (i.e. before retirement age) you will be penalized with a 5% penalty and you will also pay tax on any amounts withdrawn before retirement age.
How much can you save with SRS tax credits?
Let's be clear here. The primary benefit of putting money into your Complementary Retirement Scheme (SRS) is the tax benefits.
Aside from the tax breaks, the SRS account doesn't actually do anything special with your money. So investing the money alone or holding it in a high-yield savings account brings few benefits.
If you participate in the SRS, it must be because you want to reduce your tax burden. for those who areearn more than $40,000 a year, the savings can be quite significant.
This table shows you approximately how much you are likely to have to depositIncome tax every year on every dollar you earn:
income tax rate
Up to $20,000
20.001 $ bis 30.000 $
30.001 $ bis 40.000 $
40.001 $ bis 80.000 $
80.001 $ bis 120.000 $
120.001 $ bis 160.000 $
160.001 $ bis 200.000 $
200.001 $ bis 240.000 $
240.001 $ bis 280.000 $
280.001 $ bis 320.000 $
Any income over $320,000
Notice how there's a big $40,000 move to the next level? Because of this, it's not worth opening an SRS account until you start making more than $40,000.
Here's an extremely simplified example that ignores all other available tax credits:
Let's say you're Joe Average, an office worker who made $40,000 last year. They would have paid $550 in income taxes this year.
But earlier this year he got a new job and is now making $50,000 a year. This means that when tax season starts next year, you will have $550 (on the first $40,000 of income) + $700 (7% of the $10,000 increase) = $1,250 in income taxes have to shell out. That's more than double what you paid this year!
However, if you open an SRS account this year and deposit $10,000 there, you will receive a tax break on that $10,000. This will bring you back to your previous income level and yourthe income tax "bill" will fall once again to $550. You would save $700 in income taxes.
Are there limits to your SRS contributions and tax credits?
yes there is
Before attempting to fund your Block Sale Windfall into your Supplemental Retirement Plan (SRS) account, you should know that there are two limits to prevent people from abusing the plan to evade taxes: (a) annual contribution limits of the SRS and (b) Personal Income Tax Cap.
For(a) Limits on annual contributions to the SRS, there is a maximum amount you can deposit into your SRS account each year. Here are the latest SRS limits as of 2022:
maximum annual contribution
You do not have to file your tax return to receive your SRS tax benefit. The bank that manages your SRS account reports directly to the government, and your tax credit is calculated automatically.
But here it is(b) Personal Income Tax Relief Capcomes into action There is a$80,000 limit for full personal income tax relief, including SRS contributions and anything else that qualifies you for tax breaks such as B. Child benefit for working mothers and donations.
look at thisIRAS tax calculator pageto estimate the amount of tax credits and refunds you may receive. More information on howLower your personal income tax, see our article.
What are the Best SRS Account Opening Promotions in 2022?
Sie können ein Konto für den ergänzenden Altersvorsorgeplan (SRS) bei einer der örtlichen Banken eröffnen: DBS, OCBC oder UOB. Um ein Konto zu eröffnen, können Sie entweder persönlich mit Ihrem NRIC oder Reisepass bei einer der Banken vorbeikommen oder online einen Antrag stellen:
Banks offer the following SRS account opening/investment promotions:
SRS Account Promotion
[nothing at the moment]
[n / A]
[nothing at the moment]
[n / A]
[nothing at the moment]
[n / A]
Depositing money into your SRS account works just like depositing money into any other bank account. While the exact process will vary depending on the bank you use, you should be able to deposit money via web/mobile banking, in branch, or by check (please include your SRS number on the back of your check).
You can also have your employer contribute money to your SRS. Please note, however, that SRS contributions can only be paid in cash. You cannot use CPF to fund your SRS account. Do not be impertinent.
Can you use your funds for SRS investments?
Yes, you can and should, because putting your money into a Complementary Retirement Regime (SRS) account and doing nothing with it is like flushing it down the toilet.
Instead of allowing the money in your account to lose value through inflation, you can invest those SRS funds. Best of all, youInvestment gains are not taxed.
The problem is that you can only invest your SRS funds in government-approved ways such as:
SGD Fixed Deposits
Singapore Savings Bonds
The bank where you opened your SRS account can advise you on exactly what you can use your SRS funds for.
When can you make an SRS withdrawal?
Singaporeans with an SRS (Supplementary Retirement Plan) account can: aretreaton or after the statutory retirement age, i.e. 62 years (current). You can also do it for medical reasons (e.g. you need the money for an operation) or because of bankruptcy.
If you are retiring before retirement age and not for bankruptcy/medical reasons, you must do soPay 5% fineThey will force you to do it too100% taxable on the amount withdrawn. The amount withdrawn will be added to your taxable income when calculating your income tax liability for the year.
Sounds harsh, but it's the Supplementaryretirementplan...
Conversely, if you wait until retirement age to withdraw your SRS savings, you pay only 50% of the withdrawal amount in tax.
This means you can make SRS withdrawals of up to $40,000 per year tax-free! (Because 50% x $40,000 = $20,000. And there is no income tax on an annual income of $20,000 or less. Of course, this assumes you have no other source of income.)
SRS retirement age
to pay tax
Before retirement age
100% of the withdrawal amount
Retirement age (62) and beyond
50% of the withdrawal amount
Conclusion: Is complementary old-age provision really worth it?
Banks can be very aggressive with their SRS account opening promotions right now, but that shouldn't be the only reason to open one.
Unlike, say, signing up for a new credit card, opening an SRS account is a serious long-term commitment. The penalties for early withdrawal should not be neglected. You should think twice about whether you're willing to save your money until retirement for just a few coupons and several hundred dollars in tax breaks.
If you participate in SRS,Of You must invest your SRS fundsin one thing or another. Otherwise, leaving it as cash in your SRS account is like asking inflation to come and comeCorneryour hard-earned money.
Please note that the Supplemental Retirement Plan is NOT the only way to plan for your retirement.
Nothing prevents you from simply opening another bank account and investing your retirement savings there!
Or, if you don't mind locking up your money until retirement, butannoyingTo make your own investments, you can always add a guaranteed 2.5% to 4% per year to your CPF. returns.
In summary, the primary reason for participating in SRS is tax breaks and nothing else. So you have to calculate beforehand how much money you will save as a result of the tax break and whether it is worth it.
Know someone who should learn about SRS tax breaks? Share this article with them.
The publication Guide to supplementary old-age provision + SRS account promotions 2022 first appeared inMoneySmart blog.
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The chargeGuide to Supplemental Pension Scheme + SRS Account Promotions 2022first published inMoneySmart.es.
Original article:Guide to Supplemental Pension Scheme + SRS Account Promotions 2022.
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