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10Min Guide To Know Everything On SRS! | Plus High Income Analysis

Supplementary Retirement Scheme (SRS) was introduced in year 2001 to encourage voluntarily saving for retirement. 

And in the last 18years, more than 140,000 accounts have been opened with more than $8B contributed!

How does the Supplementary retirement scheme (SRS) account work?

If you want to open the SRS account, you can do it online with DBS, OCBC and UOB.

The common misconception is SRS is under CPF. It is NOT!

Hence, it does not give you the 2.5% interest in CPFOA or the 4% interest in CPFSA.

You will ONLY get a nominal interest of 0.05%p.a. for the funds inside SRS!


To get tax relief, make voluntary contributions to your SRS account. If you contribute $15,000, you would see your chargeable income reduced by $15,000. It is a dollar-for-dollar tax relief. Further details below.

It is fully voluntary. You can choose to contribute this year and not do for the next. 

How much taxes can you save if you contribute the max $15,300?

The summary below is a quick glance of how much you can save.

From MOF statistics, 90% of those who made an SRS contribution in the past year have an assessable yearly income of more than $80,000.

In accordance to current IRAS tax rate

The higher your income, the more savings you get from tax relief via SRS contributions

Should you contribute to SRS?

I've this short formula "IRAS" (Income, Relief, Allocate, Set aside) to help you decide if you should contribute.

INCOME: How much is your Income?

As mentioned, most who contribute have a yearly assessable income of $80,000 and higher.

The higher your income, the higher the amount of tax savings you get with a contribution into your SRS.


RELIEF: How much is your existing Relief?

The personal income tax relief cap of $80,000 applies from Year of Assessment 2018.

As SRS contributions made cannot be refunded, please ensure that you have not hit the relief cap.  

You may have reliefs already in place and especially if you have the working mother's child relief (WMCR), please ensure you are not above the relief cap.

For working mums, some quick thoughts in this post: Working mothers targeted with tax relief cap?

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ALLOCATE: What is the maximum you can contribute?

If you are citizen and PR, it is $15,300.


SET ASIDE: How long are you willing to set it aside?

Any withdrawals before your age62 will incur a 5% withdrawal penalty. Hence, be sure you are willing to set this amount aside till age62 for retirement (citizen and PR).

SRS account for foreigners: Differences to note!

ALLOCATE: The maximum you can contribute is $35,700/year.

SET ASIDE: Maintain your SRS account for a period of not less than 10 years from the date of your first contribution to your SRS account. 

To avoid any withdrawal penalty, withdraw all amounts entirely in ONE withdrawal transaction.

However, the 50% of the amount is still subjected to tax. More.

How does withdrawal after the age62 work?

You can make withdrawals from your SRS account over ten years from the date of your FIRST penalty-free withdrawal after your age62.

If you start at age63, you need to complete withdrawals by age72. You can start also at a later year like age65 and complete withdrawals by age74.

On expiry of the 10-year withdrawal period, you do not need to close your SRS account or sell your investments. The remaining funds and market value of other investments in the SRS account will be deemed withdrawn at year 10.


For investments in life annuities, the 10-year withdrawal period DOES NOT apply. 

If your SRS account is still open, your monthly annuity payouts will be returned to the SRS account before you withdraw them. 

If your SRS account is closed, your monthly annuity payouts may be paid into your bank account directly but 50% of amounts will still be subjected to tax.

That makes certain planning strategies possible and I've this further video sharing for you below!

How is withdrawals from SRS taxed after age 62?

50% will be assessed as income. At current tax rates, amounts $20,000 and less are tax free.

Hence, the strategy is to withdraw only $40,000 per year (with 50% taxable which becomes tax free) and space it out over 10years as shown below.

What if you have rental income &/or an SRS account built to $1M?

Now these points are seldom mentioned.

Firstly, if you have rental income, it is considered personal income and will be taxable! SRS stream adds on to your total income then.

Secondly, if you contribute $15,300 into SRS for 30years and get an investment return of 5%p.a, you'd build a $1,016,514 pot!

These two points make such a situation above possible. Certain parts of your SRS withdraws will be taxed. But hey, at least it is deferred all the way to your age63 and above??

Points to consider

1) Will first $20,000 be tax free remain that way after 30years? It is probable that $20,000 is really little in 30years time and the tax free zone is increased. What if tax free zone is like $50,000?

2) If there is rental income, wouldn't it be better to space out SRS withdrawals better with an annuity?

Contribute to SRS OR CPFSA topup via RSTU for tax relief?

This is a common dilemma.

The quick answer is if you have enough cash savings and you did not breach the $80,000 relief cap, consider tapping into both schemes!

This is a quick overview of the differences.

Quick snapshot for current promotions (End 2019)

DBS: Open a new SRS account and contribute a minimum $10,000 ($50 cash gift)

OCBC: Open a new SRS account and contribute a minimum $10,000 ($50 cold storage vouchers)

UOB: Open and deposit a minimum of $1,000 ($30 worth of shopping vouchers)

#Please check with the respective bank for details and availability of promotion.

Please check if it's still available.

Interesting statistics: Billions of SRS deposits still sit as cash!

As mentioned above, keeping the SRS in cash will only pay you 0.05%.

In the chart below, you'd see that roughly 1/3 of ALL SRS sits as cash! Weird but true.

Perhaps that's why banks are refusing to increase the nominal interest for SRS accounts. 

If they increase the SRS funds interest rates to 1%, it would cost them millions more. Moreover, it will only incentivise more SRS funds to be kept as cash and banks are keen to provide wealth management ideas.

Source: MOF

There are many investment options to choose from and I'd share more with you in the next section

Don't let your funds idle inside SRS account

This is a quick overview of the various choices which should all be better as an investment choice with a long term approach. 

If in doubt, consult a qualified professional.

# 1 Singapore listed shares

You can invest in shares listed on the Singapore Exchange (SGX) with your SRS funds. This includes REITS.

Overseas listed shares are NOT SRS approved.


# 2 Singapore listed retail bonds

Several retail bonds are listed on the SGX. Retail corporate bonds are generally "IOU" issued by companies and they pay a regular coupon.


# 3 Singapore Savings Bonds (SSB)

You can purchase SSB to a cap of $200,000. Personally, I'd recommend using cash for SSB purchases.


# 4 Retirement/Annuity plans

Most insurers have plans that qualify with SRS. SRS compliant plans are single premium plans.

Read post on 5 retirement plans that give you guaranteed income to know more! 


# 5 Unit trust and ETFs

Both unit trust and ETF's offer diversification to some extent.

If you are new to investing, perhaps it is the better approach.

Most retail unit trust funds are also SRS qualifiable. 

If you are looking for an investment portfolio for your SRS funds

I'm with Promiseland Independent and I can help you get a SRS portfolio set up.

The portfolio will be made up of 6 funds and it will be reallocated and rebalanced every 3months to constantly get it better positioned.

If you are keen, drop me an email at josh.tan@promiseland.com.sg.

Conclusion

There is a rising trend of foreigners opening SRS account and youngers less than age30 doing so.

Opening up the account early is likely to be to your benefit as you lock in withdrawal age at age62.

Hope the guide was helpful to you!

Last updated on June 8th, 2020 at 10:11 pm

Josh Tan Jian Liang (CHFC) Principal Author

REVIEWS: https://theastuteparent.com/josh-tan Practising financial planner with Promiseland Independent Pte Ltd. EXPERIENCE: More than 13years. Josh Tan is a young parent, speaker, author and founder of TheAstuteParent.

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