Should I Top Up My Singapore Retirement Scheme (SRS) Account? Here’s Everything You Must Know
Understanding the SRS
Key Features of the SRS
Tax Relief: Contributions to the SRS account are eligible for tax relief, reducing taxable income.
Investment Options: Funds in an SRS account can be invested in various instruments, including stocks, bonds, and unit trusts.
Contribution Limits
The maximum annual contribution limits for the SRS are as follows:
- Singapore Citizens and Permanent Residents: Up to S$15,300 per year.
- Foreigners: Up to S$35,700 per year.
These contributions can be made at any time during the year but must be completed by December 31 to qualify for tax relief in that Year of Assessment (YA).
Tax Relief Benefits
Considerations Before Contributing
Understand Tax Position: Consider how much tax relief you need and whether topping up your SRS account will significantly impact your taxable income.
Plan for Withdrawals: Think ahead about when you will need access to these funds and plan your contributions accordingly.
Pros of Topping Up Your SRS Account
Tax-Free Investment Growth: Returns on investments made through the SRS account grow tax-free until withdrawal.
Flexible Withdrawal Options: After reaching retirement age, only 50% of withdrawals are subject to tax.
Diverse Investment Choices: Funds can be invested in various instruments tailored to individual risk appetites.
Death and Terminal Illness Benefits: In cases of death or terminal illness, funds can be withdrawn without penalties or taxes up to a certain limit.
Cons of Topping Up Your SRS Account
Contribution Limits: Annual caps on contributions may limit how much you can save compared to other investment vehicles.
Investment Risks: Unlike CPF contributions that offer guaranteed returns, investments made with SRS funds can fluctuate in value.
Long-Term Commitment Required: Contributions should be viewed as long-term savings due to penalties associated with early withdrawals.
Withdrawal Options Without Penalties or Taxes
1. Withdrawal at Retirement Age
Individuals can begin withdrawing from their SRS accounts at age 63 (increasing to 64 from July 1, 2026).
Withdrawals can be spread over a period of up to 10 years, allowing for manageable income during retirement.
Only 50% of the withdrawn amount is subject to income tax.
2. Withdrawals Due to Medical Grounds
If diagnosed with a terminal illness or incapacitated, individuals may withdraw funds without penalties at any time.
For partial withdrawals due to medical grounds, only 50% of the withdrawn amount will be subject to tax.
Full withdrawals due to terminal illness are exempt from tax up to S$400,000, meaning only amounts exceeding this threshold are taxed at 50%.
3. Deemed Withdrawals Upon Death
If an individual passes away, funds in their SRS account are deemed withdrawn as of the date of death.
Beneficiaries can access these funds without penalties or taxes up to S$400,000, similar to terminal illness withdrawals.
4. Withdrawal After Ten Years for Foreigners
Foreigners can withdraw their SRS funds without penalties after maintaining their accounts for 10 years from their first contribution.
Upon reaching retirement age, similar tax rules apply—only 50% of withdrawals are subject to taxes.
Implications of Early Withdrawals
A 5% penalty on the withdrawal amount applies.
The entire amount withdrawn will be fully taxable as income.
This penalty undermines the benefits of using the SRS as a retirement savings tool if you anticipate needing access to your funds sooner than expected.
Investment Options Within Your SRS Account
Stocks: Investing in individual stocks offers potential high returns but comes with higher risk.
Bonds: Bonds provide fixed returns and are generally considered safer than stocks.
Unit Trusts: These allow diversification across various assets managed by professionals.
Singapore Savings Bonds (SSBs): These are low-risk government bonds that provide steady returns over time.
Fixed Deposits: Offer guaranteed returns but typically lower than other investment options.
Diversification Strategy
Conclusion
IPP Financial Advisers Pte Ltd
78 Shenton Way #30-01 Singapore 079120 | Tel: +65 6511 8888 | enquiry@ippfa.com |
IPP Financial Advisers Pte Ltd
78 Shenton Way #30-01 Singapore 079120
Tel: +65 6511 8888 | enquiry@ippfa.com