Do you have a Supplementary Retirement Scheme (SRS) account? And are you maximising your tax relief with it?
Find out more about What Is SRS here.
SRS is a scheme introduced by the Singapore government to encourage Singaporeans to save for retirement, by providing tax benefits. The mechanics of SRS is similar to a tax deferral scheme, where you are paying tax for your chargeable income at a discounted rate in the future. Huh? What do you mean? Fret not, just read on.
How can you use SRS for tax relief?
1. Enjoy Tax Relief now
The fastest and most straightforward way you can enjoy tax relief is by contributing to your SRS account. As Singaporeans or PRs, your contribution of up to $15,300 annually can be used to reduce your chargeable income of the following financial year. If you’re a foreigner residing in Singapore, you can contribute up to $35,700 to do the same too. $15,300 annually may not seem much at first, but if your annual chargeable income is more than $40,000, you’ll be able to enjoy significant tax savings.
Here’s the breakdown:
| Chargeable Income | $40,000 | $55,000 | $80,000 | $95,000 |
|---|---|---|---|---|
| Tax Rate | – | $550 on first $40,000; 7% on next $40,000 | – | $3,350 on the first 80,000; 11.5% on the next $40,000 |
| Tax Due | $550 | $1,600 | $3,350 | $5,075 |
If your current chargeable income is $55,000 this year, you’ll have to pay $1,600 in tax. However, if you decided to contribute $15,000 to your SRS account, your chargeable income will decrease to the previous tax bracket of $40,000, where you’ll only have to pay $550 tax. That’s almost one third (⅓) the amount of your original tax.
On top of that, you can invest your SRS funds, which could help you earn attractive interests tax-free (until you withdraw)! For example, if you invested with InvestDIY’s specially handpicked funds, which are professionally managed by Black Rock, J.P. Morgan, PIMCO, and other top global fund managers, you can enjoy 5-year returns of up to 12.12% p.a.
Interested to know more about how to invest your SRS funds in InvestDIY’s Investment Funds? Click here or contact us to learn more!
That’s why, if you are financially able, you should maximise your tax relief by contributing the maximum amount to your SRS funds.
2. Enjoy Tax Relief Later
The next part of tax relief using SRS is when you reach the statutory retirement age (63 years old, if you sign up for an SRS account today). With cleverly strategised withdrawals, you can also minimise your tax during your retirement, while maximising your investment returns for your retirement funds.
For instance, if you retire at 63 years old, with $400,000 in your SRS account, and assuming that you do not receive any other income, you can strategise to withdraw your SRS funds tax-free for 10 years! This is because you only need to pay tax if your annual chargeable income is above $20,000, and there is a tax concession period, 10 years after your 1st withdrawal after the statutory retirement age, where only 50% of your SRS withdrawal is taxed. In other words, if you withdraw $40,000, only $20,000 will be considered as chargeable income, and you do not need to pay any tax!
However, it is important to note that the SRS may simply defer your current tax to the future you, if you continue to work past the statutory retirement age, or have other sources of chargeable income. Anyways, you’ll still be able to enjoy a 50% tax concession from your SRS fund withdrawals, making SRS a great way to plan for your retirement.
Other Important Points to Note:
On SRS Contributions
The current annual cap of SRS contributions for Singaporeans and PRs is $15,300, and $35,700 for foreigners. All SRS contributions are required to be made in cash. You can make SRS contributions any time, and any number of times in a year, before 31st December each year, to enjoy tax relief in the Year of Assessment the following year.
On SRS Withdrawals
If you decide to withdraw early, before the statutory retirement age, 100% of your withdrawal will be taxable, on top of incurring a 5% penalty fee.
For the first 10 years after you reach the statutory retirement age, only 50% of your SRS withdrawals is subjected to tax. After these 10 years, your SRS withdrawals will be subjected to 100% tax.
There are lots of ways to maximise your SRS funds and grow your nest egg. Have questions that you need answers to? Our consultants are always happy to consult you on your retirement plan, and help you get the best bang of your SRS funds.
This is for general information only and does not constitute financial advice. This advertisement has not been reviewed by the Monetary Authority of Singapore.