The end of the year is often a period where we slow down our pace of work and spend some quality time with the family, especially in this disruptive year of covid-19.
As the year winds down, we would also like to offer a gentle reminder of certain year-end financial actions you could take to optimize your financial position well. These would include a voluntary contribution to your Medisave if you have not hit the Basic Healthcare Sum, top up your CPF SA or RA to the Full Retirement Sum or Enhanced Retirement Sum. Doing this would allow you to enjoy tax relief, reducing your taxable income, thereby paying less income tax.
To gain further tax relief, you could also contribute to your SRS.
What is SRS
SRS stands for Supplementary Retirement Scheme, which is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings.
Your contribution would allow you to gain tax relief. Money in your SRS account would only be taxed when you withdraw from the SRS. If you withdraw after age 62, only half of your withdrawal will be taxed at the prevailing tax rate. And if there is no or little chargeable income then, you would not be taxed or tax less.
Hence, the SRS account gives higher income earners another lever to pull to reduce their taxable income.
Take for example, if your chargeable income is between $200,000 to $240,000 (marginal tax rate of 19%), your maximum annual SRS contribution of $15,300 would immediately save you $2,907 of tax! And compounding this $2,907 over 20 years with an annual long-term investment return of 5%, could grow to $7,713.
Here are a few other things to take note of about the SRS.
Make an SRS Contribution before Year-End for Tax Relief
You can contribute to the SRS anytime, and as often as you like, but if you like to enjoy tax savings in next year tax filing, you would have to contribute your SRS by 31 December.
The process of contribution is quite seamless nowadays. You can log on to your internet banking platform and make a transfer to your SRS account as if you are doing a fund transfer between your account.
Maximum Yearly SRS Contribution that You Could Make
There is a cap to how much you could contribute to your SRS for tax relief.
If you are a Singapore Citizen or a Permanent resident, the annual maximum SRS contribution is currently $15,300. For foreigners, it is $35,700.
Cap to Your Maximum Tax Relief
There is a cap to how much tax relief we can claim, which is a maximum cap of $80,000.
This means that if you aggregate all your tax reliefs together (including SRS contribution) and it amounts to $85,000, you can only enjoy a tax relief of $80,000.
Invest Your SRS Now
The tax relief is an incentive to encourage you to put your money into the SRS, invest it well and build up another pot of retirement savings, in addition to optimizing your CPF savings and other investible assets for a well-deserved retirement.
Remember to contribute your SRS before 31 December if you have not already done so! If you need assistance on SRS, please feel free to contact your client adviser today.
This is an original article written by Kyith Ng, Senior Solutions Specialist at Providend, Singapore’s Fee-only Retirement Wealth Advisory Firm.
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