Friday, 6 January 2017

Retirement Sum Top Up Scheme

A new year, a new IR8A coming soon!

When it comes to personal income tax in Singapore, there are several ways which one can use in order to reduce the taxable income.

Important especially if you are hitting or have hit the next tax bracket which is 'Siong' by the way.

The Retirement Sum Top Up (RSTU) scheme from CPF board is one avenue which can be used to get some tax relief for yourself.

Basically it involves topping up of cash to your, your parents', parents' in law, grandparents', grandparents' in law, spouse's* or sibling's* CPF account.

* Do note your spouse's or sibling's annual income in the preceding year cannot exceed S$4k unless they are handicapped.

You can enjoy up to S$7k of tax relief per calender year if you top up for yourself and up to another S$7k of relief if you top up for your loved ones stated above.

Sounds good eh?

However one important point to take note is that the recipient would not be getting the full amount you topped up at one go.

A case study to highlight this point:

Assuming your dad is 70 years old and he has nearly exhausted the funds in his CPF retirement account (RA).

From next month onwards you intend to top up S$1k to his RA every month. However he will only be getting about S$500 next month from the S$1k that you topped up for him.

The balance S$500 can only be disbursed to him the following month. Nevertheless this balanced amount if left untouched, will earn an interest of 4 - 6% per annum.

So before you decided to do the cash top up for your loved ones, think carefully whether it's better to give them the money directly or better to earn additional interest for them while getting some tax relief for yourself.

For more information, you can refer to the link below.

https://www.cpf.gov.sg/Members/FAQ/schemes/retirement/retirement-sum-scheme

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