CPF Moves To Make Before 2020 Ends: Enjoy Tax Relief and Grow Your Retirement Savings
2020 is ending.
In exactly 20 days.
Congratulations to all of us for making through this tumultuous year.
As much as my year has been a mess, I decided to ensure that my financial health was not in a mess as well.
Since it was the end of the year, I began to do a yearly review of my financial growth to keep track of my progress, as well as to identify areas of improvement.
As I didn’t actively keep track of my Central Provident Fund (CPF) accounts, it was heartening to see how it has grown over time.
If you’re looking to get your finances sorted before the year ends, here are some CPF things you can look at!
TL;DR: CPF Things To Do Before the Year Ends: Reduce Your Income Tax and Grow Your Retirement Savings
|Things To Do||What You Can Get|
|Cash Top-up to CPF Special Account||Reduce income tax and grow retirement savings|
|Transfer CPF From OA to SA||Guaranteed additional 1.5% compound interest|
|Top up Your Child's CDA & SA||Dollar-to-dollar matching for CDA, unused funds will go into CPF OA when child turns 30 years old|
|Giving Your Parents Allowance via CPF||Reduce income tax and grow parents' retirement savings|
|Top up SRS Account||Reduce income tax and grow retirement savings|
Cash Top-up to CPF Special Account
This is one that I practise yearly – doing cash top-ups to my CPF Special Account (SA).
While this might not be common among my peers, I believe in taking the money I can currently spare and channelling it into my CPF account as part of my retirement fund.
There are different ways you can top up your CPF to grow your CPF savings:
- Voluntary cash contribution to all three accounts (Ordinary, MediSave, and Special Accounts)
- Voluntary cash contribution to MediSave Account only
- CPF Transfers from Ordinary Account to Special or Retirement Account
- Cash top-up to Special or Retirement Account
I personally opted for the cash top-ups to my CPF SA.
Besides being able to reap the benefits of the 4% compound interest, I can also get tax relief by performing this transfer.
If you’re wondering about the magic of compounding, here’s a sneak peek:
If you were to top up $7,000 and leave it for 30 years, this $7,000 will eventually become $21,000.
In terms of tax relief, there will be a dollar-to-dollar matching, which would allow me to save on my total taxable income by $7,000.
That being said, since this process is irreversible and can only be retrieved as CPF LIFE’s monthly payouts when we turn 65, only put in money that you’re comfortable with keep aside till you are old and grey.
Transfer CPF From OA to SA
This is another strategy that can be adopted if you’d like to look for alternatives to grow your retirement savings.
It is also a risk-free approach if you’d like to grow your retirement nest egg at a slightly faster pace.
While there is no tax deduction for this transfer, this simple transfer guarantees an additional 1.5% which would also compound significantly over time.
Here’s how much difference it could make over the span of 30 years, assuming a transfer of $30,000:
|Age||Ordinary Account (2.5%)||Special Account (4%)|
This method also provides a very convenient as individuals do not have to decide what investment product to invest in to grow their savings.
However, doing this transfer would mean losing the flexibility to spend these funds in investments, education or approved insurance if it is kept in OA.
Top up Your Child’s CDA & SA
If you’re a parent, you must not miss some of the CPF hacks to give your child a financial headstart.
If you’re wondering what’s the relation between the Child Development Account (CDA) and CPF, this is because any unspent balance in your child’s CDA will be transferred to their Post-Secondary School Account (PSEA) when they turn 13 years old.
And if it remains unspent, it will then be transferred to their CPF Ordinary Account when they turn 30 years old!
What’s great about topping up the CDA account is that the government will also match the amount you saved in your child’s CDA, dollar-for-dollar.
A quick view of how much will be matched:
|Birth Order||Dollar-for-Dollar Matching Cap|
|1st & 2nd Child||Up to $3,000|
|3rd & 4th Child||Up to $9,000|
|5th Child & Above||Up to $15,000|
If it’s free money, so why not just take?
If you would like to take things a step further and plan for your child’s retirement nest egg using CPF, and you have the Full Retirement Sum’s (as of 2020) worth of cash to hand to your child…
Here’s how much it could potentially compound to if you were to do a lump sum top-ups to their CPF Account via the Retirement Sum Topping Up Scheme (RSTU):
|Your Child's CPF Special Account|
|Initial Lump Sum Top-Up||$181,000|
|Balance after 25 years||$482,516.38|
|Balance after 55 years||$1,564,992.41|
Your child could be a millionaire once he/she turns 55 years old. 🤯
However, do note that topping up of children’s’ CPF is non-tax-deductible.
Note: The amount that your child can receive is the current Full Retirement Sum (FRS) less net Special Account (SA) balance and net amounts withdrawn from SA for investments that are still active.
Giving Your Parents Allowance via CPF
This is something that I’ve heard my friends doing, especially those with parents who are not in urgent need of additional cash for their current lifestyle.
A way to ensure that your parents are well-prepared for retirement would be by topping up their CPF accounts.
Through the CPF Retirement Sum Topping-Up Scheme (RSTU), you can top-up to your loved ones’ Special Account, for recipients aged 55 and below, up to the current Full Retirement Sum.
Similar to the top up to your own SA, you will get to enjoy tax relief of up to $7,000 per year as well.
This means that if you were to perform top-ups to both your own SA and your parents’ RA, you can get tax relief of up to $14,000 ($7,000 for self, $7,000 for family members).
There will also be another additional option for such top-ups from 1 Jan 2021 onwards – through the CPF Matched Retirement Savings Scheme (MRSS), where top-ups can be done for CPF accounts that have yet to meet the Basic Retirement Sum.
The Government will match every dollar of cash top-ups made to eligible members up to an annual cap of $600.
Top up SRS Account
While the Supplementary Retirement Scheme (SRS) is not directly related to CPF, it is a voluntary scheme that was introduced by the government that complements the CPF.
While the CPF is an involuntary savings scheme that would provide us with our basic retirement income, the SRS is in place to help you put aside more funds for retirement.
Besides being able to put aside money for retirement, you get to enjoy tax relief and pay lesser income tax as well.
You just have to contribute to your SRS account by 31 Dec of every year to qualify for tax relief.
Besides that, you can also consider investing your SRS funds to grow your money further.
Here’s a quick list of government-approved SRS investment options:
- Fixed Deposits
- Life Cover (including total and permanent disability benefits)
- Real Estate Investment Trusts (REITs)
- Singapore Savings Bonds
- Single-Premium Insurance Products (recurrent single premium products, both annuity and non-annuity plans)
- Unit Trusts or Mutual Funds
Do note that there is a yearly contribution cap of $15,300 for Singaporeans and PRs, and $35,700 for foreigners.
If you still do not have an SRS account, you can consider opening your SRS account and top-up $1 to “lock-in” your retirement age!
Things You Can Do With CPF Before the Year Ends
Many of these CPF moves would require ‘locking up’ of your money to enjoy the delayed fruits of labour.
This is the epitome of delayed gratification since most of the results can only be seen years later.
As these actions are irreversible, they would work well for funds that you know you would not be touching for the next 30 years or so.
But given the magic of compounding, these CPF moves are definitely worth considering if you are looking to grow your retirement nest egg.