Step By Step Guide To Top Up Your CPF SA Using Cash To Save On Income Tax
As we reach the end of the year, I spent the morning together with my fiancée to go through our yearly finances and where we could have done better.
Overall it was pretty satisfactory, and we did grow our savings, investments and most importantly CPF as well. Even though we had to make our downpayment of around $30k using our CPF Ordinary Account (OA) for our BTO home which we selected in September 2019 and put up downpayment for our upcoming wedding next year.
The one consistent growth rate was in the CPF accounts, and that made us pretty happy and assured that our retirement funds were growing.
I was then reminded by what Mr 1M65, Loo Cheng Chuan at the Seedly Personal Finance Festival event in March earlier this year on how you can accelerate your overall savings even faster via the CPF Special Account (SA). Why not practice what we preach, and do it for ourselves by documenting the step-by-step below to serve the larger Seedly community!
P.S CPF Board, if you are reading this, we hope to see you at the Seedly Personal Finance Festival 2020 too! (Ticket sales start 2nd Jan)
It literally takes you 5 minutes – The famous RSTU (Retirement Sum Topping Up Scheme) to your CPF Special Account (SA). By the way, we’re not sponsored or paid to write this. Any opinion is from my own sharing.
TL;DR: You Can Consider Topping Up Your SA To Save On Income Tax
- Consider this if you have some spare liquid cash (between $1k to $7k would be a good range)
- Only do this if you don’t intend to touch it until 55 years old (yes, that’s a damn long time)
- You can top up to $7k for individual and $7k for family member (either Special Account or Retirement Account)
- Compounding is awesome – Your $7k will become $21k in 30 years
- Not only that, you save on your total taxable income by $7k
- However, you don’t see your cash until 55 years old and it will be ‘locked up’
- If you are keen, it literally takes you 10 minutes to do Online or via the app via Paynow
I will detail this in more clarity below, but before I jump into the Step-by-step (with pictures), I will want to share more about how magical this part with a clearer picture on how this works.
Pros: Compounding with 4% p.a interest works magically
For some context, the cash in your bank gets you between 0.05% to 2% p.a. But even worse, is that when you see the cash sitting there, there is a higher chance you would spend it.
I’m sure some of you might be thinking, you can get better than 4-5% p.a interest out there but the risk levels are definitely higher than putting it in a CPF account which is backed by a AAA rated government of Singapore.
30 Years From Today: Your $7k Is Worth $21k
This chart above shows you that if you topped up $7k today, and that value is $21k, 30 years from today. That’s really incredible if you think about it with a 4.0% p.a
For both of us, we are 27 years old this year, thus at age 55, it would be close to 28 years later. Thus, the value in our CPF SA will definitely be more than 3 x it’s current just by pure compounding at 4 to 5% p.a. This sounds pretty much like a beautiful retirement life and extra funds for our next generation.
Pros: Save On Your Income Tax
This one is more direct, and in fact, as of the time this is published, you will only have 2 more days to do it in the calendar year.
- You can only save on your taxable income by $7k (for yourself)
- You can save up on another $7k taxable income for your spouse, parents, parents-in-law, grandparents, grandparents-in-law and siblings.
Cons: You Say Goodbye To Your $7k For A Very Long Time
As with the Chinese saying goes, you first taste bitter, then you taste sweet.
This is pretty much a very asian mentality but this is a very prudent decision. In fact, it is one which will last close to 30 years, if you are also a mid 20s person like I am.
Pressing the button to transfer the $7k was pretty painful, but we will definitely look to do this again next year. To grow our Special Account in a compounded rate down the years!
8 Steps to Transfer Cash Into Your CPF Special Account
If you have read till now and are convinced that you want your retirement savings in your SA to compound at a faster pace, you can simply follow this step by step guide to do it.
It should take you around 10 Minutes to do the following steps.
You can either download the CPF Mobile App or head over to the CPF Website (which I have used)
STEP 1: Navigate to “Building Up My/ My Recipient’s CPF Savings”
Submit an online application via My Requests > Building Up My / My Recipient’s CPF Savings.
STEP 2: Enter Your NRIC Which Is Your CPF Account Number
STEP 3: Select “Top Up Your Own SA Account Under The Retirement Sum Top Up Scheme”
STEP 4: Key In Your CPF Account Number Again
STEP 5: Key In The Amount You Would Want To Top Up
STEP 6: Confirm Your Payment Request Details and Click Make Payment
STEP 7: Payment Request Page Will Show Up With a PayNow QR
STEP 8: Check That Your Payment Has Went In Via the Transaction details “Other Contributions”
Conclusion: Taste Bitter, then comes the Sweetness
As shared already, the pros and cons are clearly spelt out above.
This action is irreversible, so really only do this if you do not intend to touch the $7k for the next 20 to 30 years of your life.
But on the flipside, is that compounding is really cool, so you can seriously consider this. And most importantly, the funds in the CPF account are yours at the end of the day, and do not let naysayers tell you otherwise.
So all the best and see you 30 years down the road! Hopefully this blog will still exist by then.