This savings hack lets you prepare for retirement AND save on taxes!
For many Singaporeans, figuring out how maintain their lifestyle in retirement is a big cause for concern. 66% of Singaporeans worry about being poor in retirement, and 28% expect to earn a lot less income in retirement.
But with the right financial tools and a little bit of planning, Singaporeans can save up a decently-sized nest egg for their retirement. One great tool is the Supplementary Retirement Scheme or the SRS.
What is SRS account Singapore?
In a nutshell, it’s a savings scheme designed to work in tandem with your Central Provident Fund (CPF) savings for retirement. Here are a few things you should know about the SRS.
1. The SRS Singapore is totally voluntary
It’s up to you whether you choose to participate in the SRS or not. You can also contribute any amount you want, up to a certain annual contribution cap—$12,750 for Singaporeans and permanent residents, and $29,750 for foreigners.
2. There are three SRS operators
3. With the SRS, you pay less taxes
For each dollar you contribute to your SRS, your taxable income is reduced by a dollar. For example, let’s say your annual income is $60,000. If you contribute $10,000 to your SRS every year, that means that only $50,000 of your income will be taxed. Neat, huh?
4. You don’t have to be Singaporean to participate in the SRS
Singaporeans, permanent residents, and foreigners can join this scheme, so long as they’re at least 18 years old and an not an undischarged bankrupt. But of course, the tax relief only applies to tax residents of Singapore.
5. You can make bigger tax-exempt withdrawals after retirement
The statutory retirement age is 62. You can make withdrawals before then, but 100% of the sum withdrawn will be taxed, and you’ll be issued a 5% premature withdrawal penalty. However, after you turn 62, half of your withdrawals will be tax exempt. Patience is key!
6. After turning 62, you have 10 years to withdraw the full amount
That is, 10 years from the very first withdrawal you make after turning 62. If you still have money or investments remaining in your SRS account after 10 years, 50% will be taxed.
7. You can make investments with your SRS funds
You can invest in stocks, bonds, trusts, fixed deposits, insurance, etc. Plus, you don’t have to stick with your SRS operator—you can invest in products by other financial institutions.
What do you think about SRS Singapore? Will you be opening an account? Tell us what you think in the comments!