How do I maximise my tax concessions in an SRS account
By all accounts, the Singapore income tax rate is relatively low. However, there is a way to reduce your tax bill even further!
The Supplementary Retirement Scheme (“SRS”) is a scheme that all Singapore residents can make contributions to. Monies deposited into the SRS will immediately reduce your tax bill and the investment income earned from these funds are also tax-free. There is a maximum amount that you can contribute to this fund every year though. The maximum is currently S$15,300 for Singaporeans/ PR and S$35,700 for foreigners.
Sounds easy right?
Here’s the thing:
The default interest rates in your SRS account is a measly 0.05%
The default interest rate in the SRS account of 0.05% is way below inflation. This means the value of your money will erode over time. Whilst you can put your money in a range of investment instruments, we believe that an investment that is capital guaranteed with an element of guaranteed returns is very important to preserve your funds.
You need a strategy for withdrawing your money if you want to avoid paying income tax on these monies altogether
There is 50% tax concession when withdrawing your money from the SRS after your retirement age. For example, if you withdraw $10,000 from your SRS account in a year, only $5,000 will be counted towards your income tax calculation.
As annual income up to $20,000 is tax-free in Singapore, you can withdraw up to $40,000 from your SRS account tax-free ($20,000 X 2). Once you start withdrawing, you only have up to 10 years to enjoy the 50% tax concession. This means, that whatever you invest in, you should aim to get liquidity in your SRS account for withdrawal over the 10 year period. In total, you can withdraw up to $400,000 ($40,000 X 10), tax-free over the 10- years!
How do you (a) maximise your SRS returns, (b) protect your capital and (c) ensure that you have liquidity in your SRS account when you want to withdraw cash?
So far, only insurance products designed for the SRS are able to achieve all three objectives. Broadly, the typical features of these products include:
- Single premium investment which accumulates a mix of guaranteed and non-guaranteed returns until your retirement age
- Regular monthly cash payouts for 10 years into your SRS account after your retirement age so that you have cash to withdraw on a regular basis over the 10 year tax concession period
- Capital is preserved and guaranteed after the accumulation period
The guaranteed investment return can be up to 36x the SRS default rate and the total investment return can be in access of 70x the SRS default rate!
So, remember, if you are thinking of using the SRS to minimise your tax bill, always invest to maximise your investment returns and preserve your capital and have a withdrawal strategy that meets the 50% tax concession requirements.
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