Is Topping Up To Your Child’s CPF and Medisave a good idea?

It's a common question: "What to do with spare cash" or "What to do with "Hong Bao" or "Green Packet" money given to your child"?

Where would be a good place to park it?

Today I'd be sharing with you the three methods to topping Up To Your Child’s CPF and some insights to it!

Method 1: Topping Up To Your Child's CPF Via Voluntary Cash Contribution (VC)

You can use the VC to top up. Link to CPF E-cashier here.

Funds deposited will be broken down to CPFOA, CPFSA and Medisave respectively.

The interest given to your child (assuming less than $60,000 and factoring a 1% extra*) would be 3.5%, 5% and 5% respectively.

*Do note that the extra interest applies only if total accounts are less that $60,000 and all extra interest actually goes to CPFSA.

With the allocation amount at 23%, 6% and 8%, the effective interest is about 4.07%p.a.

If you are keen, there is a cap to take note of which is the Annual CPF Contribution Limit which is $37,740.

If you analyse it, the interest earned in CPFOA is not really appealing because even endowment plans can deliver such returns for you with more liquidity.

The CPFOA accumulated there can only be for his/her future housing or local university studies under CPF Education Scheme.

Hence, methods 2 and 3 below are possibly superior.

Method 2: Topping Up Directly To Your Child's Medisave

You can top up directly to medisave which can be used for medical needs and private integrated shield plan premiums.  Link to CPF E-cashier here.

In future, your child can even use his/her medisave to pay your hospital bills. #touchwood.

The interest earned in your child's medisave would likely be 5%p.a.* (factoring 1% extra)

*Do note that the extra interest applies only if total accounts are less that $60,000 and all extra interest actually goes to CPFSA.

If you are keen, there are caps to take note of which is the Annual CPF Contribution Limit which is $37,740 and the Basic healthcare sum (BHS) on the medisave account which is $57,200.

To read more on IRAS deductions for individuals (reliefs, expenses and donations)

Method 3: Topping Up To Your Child's CPFSA Via RSTU (Retirement sum topping-up scheme)

Usually the RSTU scheme is tapped to save for your own retirement and get relief of up to $7,000.

But it is possible to do RSTU for your child also (but no tax relief to you). Link to CPF E-cashier here.

Interest earned to your child's CPFSA would likely be 5%p.a.* (factoring 1% extra)

*Do note that the extra interest applies only if total accounts are less that $60,000

More crucially, CPFSA is only for his/her retirement!

Steps to top up for all 3 methods

1) Go to CPF website e-Cashier.

2) Fill in your child's NRIC and then select “Member”

C) Choose whichever method you prefer from the drop down box.

- Contribute to my three CPF accounts (non-tax deductible)

- Contribute to my medisave (tax deductible)

- Top up my recipients SA under the Retirement Sum Topping-up scheme (shown below)

D) Click "Next" and make payment

In future, when you want to check your child's CPF accounts, you'd need to apply to view it. 

Complete a form and mail it back to CPF Board with the necessary documents. More information here.

To see the form, click here, I have it for you! VIEW CHILD CPF FORM

Once your application has been processed, you will be able to view up to the last 15 months of your child's transaction history as well as the MediSave and Healthcare Insurance Claims and Reimbursement statement. 

Quick comparison of the three methods above + CDA account

There are no tax relief's that you can get with all three methods. CPF FAQ here

When you top up, there is a small consequence in future which is your child loses the opportunity to top up themselves for their own tax relief in future if their cap is met then.

Conclusions on why I chose to NOT top up to child's CPF and Medisave.

Your child may need liquidity at some stage in future and all 3 methods destroy liquidity.

These include cash needed for house purchase or even pay school fees. etc and VC to CPF and medisave are illiquid. Contributions in cannot be taken out.

Funds in CPFOA can be used for your child's home purchase some 20years later only. CPFSA is really for his/her retirement which is worse. It's like depositing and saying goodbye for the next 50years or so which is something so far down the road.

The main question is, do you REALLY need to take care of your child's retirement?

I've decided to put some extra savings into my child's CDA account instead of my child's CPF or medisave. 

This is despite the lower interest.

At least funds will be used in the next few years for school fees.

If your child is above the age16, look for the PSEA which yields 2.5%p.a interest.

Further savings are allocated to an investment portfolio to generate long term returns and maintain liquidity.

Bonus Tip: Joining Facebook Groups and Learn Together

Here at TheAstuteParent, we are one of the largest resource for insurance planning and financial advice for families! Over the course of our careers, we have met and helped many families.

Click here to join the Facebook Group Millionaire Kids by TheAstuteParent. #millionairekids. The community is there for you ask and answer questions, share your knowledge and meet like-minded people.

Being a breadwinner is a unique stage in life. So take on that responsibility and be an Astute Parent !

PS: Strategies to do proper financial planning for your child

Your little one has a long investment time horizons.

The first is to do a long term savings objective for your family. In the post below, you'd see how this plan by AVIVA can take care of both your child's education needs and your retirement future.

Read AVIVA MyLifeSavingsPlan | More For Child Savings Than Retirement!

And financial planning is all about building layers of assets.

You can also start building up investment portfolios for your child and if you've questions on how to start investing, this post might help you tremendously.

You'd see 5 tips on how to get starting started.

Read "How To Start Investing: Financial Advisors Gives Their Best Advice!"

Josh Tan Jian Liang (CHFC) Principal Author: REVIEWS: Practising financial planner with Promiseland Independent Pte Ltd. TJL100057681 EXPERIENCE: More than 14years. Josh Tan is a young parent, speaker, author and founder of TheAstuteParent.
Related Post