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When not to do voluntary contribution (VC) to CPF?

Saturday, February 3, 2018

Reader says...
It's the first time I did a VC to my CPF as I have already hit my FRS.

I was surprised to see that part of my VC actually went into my SA account.

I thought all of it will go into my OA.

I am still employed and I will be getting Mandatory Contribution to my OA and SA.

But after going through my last year's CPF statement, I realised that I am very close to the $37,740 annual limit.

I know that any excess will be returned to me interest free next year.

My questions are,

What happens when my MC reaches $37,740?

How is the interest in my OA and SA affected?

This $2,378.20 will be earning 4% compounded interest in my SA for the next 12 months.

How will this interest be affected when I hit $37,740?

Do they stop paying interest?

Let's say, for easy calculation my yearly MC is exactly $37,740. And in this case, I did a VC of $11,000 in Jan.

I know that they will return to me $11,000 next year. But what about the compounding interest of $2,378.20?

From your experience when you were working, what happened to your CPF interest when you did VC?

If the compounding effect of a VC in January is not affected.

A working person can earn more interest by doing a VC of $37,740 every January and get the VC back the next year, only to do it all over again.

AK says...
In the past, having met the CPF minimum sum, I would wait for closer to year end to see how much my year to date MC was and I would then do a VC to hit the CPF annual limit for the year if possible and if I had the spare cash.

Some years, I would estimate my MC for the year and do a VC earlier in the year.

In such cases, usually, I ended up overdoing it and CPFB would refund the excess contribution and also deduct any interest earned by the excess.

This is also something I have blogged about before.

Related posts:
1. CPF is a PONZI scheme!
2. Know how to grow our CPF.


Spur said...

Yup you won't get any interest from excess VC ... CPF ain't that dumb! LOL!

You can contribute VC early in the year if your salary is pretty constant or you have very good idea of salary increase/decrease based on past experience.

Maybe give yourself 10% or 20% buffer.

Then closer to end of year, when your MC from salary is more firm, you can top up VC if there's still room.

As always, make sure you've made your peace with the $$$$ that you're VC'ing coz the earliest you can access it is when you're 55 (if the rules don't change --- it could be later).

Some people don't mind as they have intention to utilize the bulk of it (OA portion) for future property opportunities, and in the meantime use CPF as a higher-interest parking facility.

john koh said...

Any VC made in excess of the CPF Annual Limit will be refunded without interest.

AK71 said...

Simp said...
Hi Ak.. asking a simple question.. I have $0 in my OA and 20K in SA.. Do you know the maximum amount I can contribute to my CPF account per year?

AK said...
Voluntary + Mandatory contributions cannot exceed the CPF Annual Limit.

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