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I hope everyone who went to InvestX Congress today had a good time.
To my regular readers who were there, I hope it wasn't too boring listening to me repeating the same old stuff about the CPF.
Beef up your CPF account.
You could do these:
1. Top Up your SA (not beyond FRS)
2. Voluntary contribution to your MA only (together with mandatory contributions, not beyond CPF annual limit and, on its own, not beyond BHS)
You will also get income tax relief for doing the above. For #1, only for the first $7,000 each year.
3. OA to SA transfer (not beyond FRS)
4. Voluntary contribution (allocated to OA, SA and MA) (together with mandatory contributions, not beyond CPF annual limit)
These will not get any income tax relief.
We don't have to do everything to capture all the benefits. It is not like Pokemon GO and we gotta catch them all. Just do what we can.
For me, the big thing was doing OA to SA transfer in the first 4 years of my life as a working adult. I emptied my OA into my SA.
Did this in the first 4 years of my working life instead of the last 4 years of my working life.
That makes a big difference because compound interest needs time to work its magic and a bigger base earlier makes it more magical.
Also, have enough in our CPF-MA and the interest income we receive yearly from the government will pay for our insurance. Who says there is no free medical insurance in Singapore?
See:
http://singaporeanstocksinvestor.blogspot.sg/2013/12/how-to-get-free-medical-insurance-in.html
Please read the following blog for updates:
CPF Amendment Bill 2021.
CPF Amendment Bill 2021.
1. http://singaporeanstocksinvestor.blogspot.sg/2017/01/ak-showing-off-his-cpf-oa-and-ma-2017.html
2. http://singaporeanstocksinvestor.blogspot.sg/2015/01/how-did-ak-amass-so-much-money-in-his.html
3. http://singaporeanstocksinvestor.blogspot.sg/2016/02/the-cpf-is-really-national-ponzi-scheme.html
If AK can do it, so can you! Gambatte!
Bloggy Award
31 comments:
Hi AK,
Thks for your re-cap. It goes to show that it does not take much effort to make ourselves better equipped for the FIRE with these simple steps.
Ben
Hi Ben,
Own time, own target, fire! ;)
Would it be better to pay off the HDB mortgage or top up SA?
Thanks for sharing AK especially on the benefits of maxing out our medisave account.
Thanks for your sharing yesterday AK, and for the angpow and hilarious jokes :D
Am I right in my understanding that every year, we can only top up max 7k total into our cpf SA or cpf MA accounts combined for the max tax relief? Additionally, if I have a limited amount of money, should I allocate more to my SA or to my MA?
Thanks!
Brina
Hi SR,
I am glad you found my talk useful.
For those of us who are lucky enough to have a CPF account, we should try to max out the benefits of our membership.
If AK can do it, so can you! ;)
Hi Brina,
Remember, top ups and voluntary contributions are separate.
Refer to the terminology and the 4 ways to beef up our CPF which I shared during my talk.
I have listed them in this blog for easy reference. ;)
Mandatory contributions + voluntary contributions cannot exceed the annual contribution limit.
Top Ups are on top of this annual contribution limit. That is why it is "top" up. On "top" of the limit. Remember I said this during the talk? ;)
MA has more immediate utility. You can use it to pay for your insurance (i.e. H&S insurance, DPS, Eldershield) even if you are not hospitalised.
SA is meant to help fund our retirement. It is a longer term objective.
Which account you wish to beef up first depends on what you think is more important to you. ;)
Would it be better to pay off the HDB mortgage or top up SA?
Hi Apex,
Oops. I missed your earlier comment.
You are probably referring to the option to do voluntary refunds to our CPF-OA for money used to pay our housing loan. This makes sense because it will stop accrued interest from growing over the years and it will help us grow our CPF-OA money.
However, topping up our SA offers income tax relief. If the income tax relief is a big deal, then, this could be a priority.
Voluntary refund to the CPF-OA or top up the CPF-SA? It will depend on our situation.
David Poh:
i really enjoyed your talk. As you were showing your SA amount i was wondering how come it can b higher than the FRS? I tot capped at $166k. How did u accumulate $200K+ in your SA?
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AK:
Once our CPF-SA has hit the FRS, no Top Up is allowed. No OA to SA transfer is allowed either.
However, mandatory contribution and voluntary contribution are still allowed up to the annual contribution cap (i.e. contribution that goes into all 3 accounts) every year.
CPF-SA will also continue to grow from interest earned year after year even after it hits the FRS.
I have a few blogs on this. Let me dig one out. ;)
See:
An update on my CPF-SA.
Hi AK,
Good recap of your talk.. thank you:)
Got a question: "Top Up your SA (not beyond FRS) - is it possible to max out SA to buy SG gov bonds, then top up SA to max, and then sell the SGBs and return money back to SA? workable bo?
Hi AK,
If your voluntary contributions exceeds the annual contribution, CPF would refund the excess fund less the interest. Lets say if your MC is $37,740 at the end of the year and through the months, VC of total $12,000 ($1000 per month) is made. CPF would refund the excess of $12,000 less the interest and what would happened to the interest or would there be interest earned on the additional funds for that year?
Regards,
Match
Hi InvestSg,
I guess I should blog about this and here it is:
Do this to inject more funds into CPF-SA?
Hi match,
No interest would be given for any excess contribution.
Basically, we would get back the excess contribution and nothing else.
AK,
Thank you so much. Just want to check if my understanding of how CPF works is correct on the interest earned. Interest are earned as per OA, SA and MA, and the interest earned flows from MA to SA to OA when it reaches per say the Max. BHS or FRS. Is this correct?
Hi Match,
Very succinct. Yes, that is correct. :)
Thanks for clarifying AK! I must have laughed too much from all your jokes and got everything mixed up. >.<
brina
Hi Brina,
I must remember to water down my jokes in future. The CPF is no laughing matter. ;p
CPF is the avenue in which one can take full advantage of the reasonable high interest by making voluntary contributions as well as transfer from OA to SA.
It will be fastastic if one refrains from using the CPF funds to pay for the housing related payment. It will be difficult for one to do so especially for those with minimal CPF savings when they join the workforce. In a few years' time, they need the fund to purchase the home.
One possible way of avoiding such payment is to delay marriage so that the couple can have more time to accumulate more saving. That being said, this option might not be favoured cup of tea for the couple. This is especially applicable for the couples who intend to have kids early.
Each individual has his/her preferred choice. There is no right or wrong decision. It is entirely to the individual.
Ben
Hi Ben,
There is a right or wrong decision.
If our actions are detrimental to what we want to achieve, it is the wrong decision. Having said this, we don't always make the right decisions in life.
We have to take ownership and find remedies.
Unfortunately, most people just complain and blame the government.
1) Is there any drawbacks to contribute the full Annual Limit of $37,740 from age 22 onwards till age 55?
2) Can I use the CPF SA as a high yield savings account whereby I just withdraw the interest earned from the previous year for daily usage for the following year? Meaning to say can I live on the 4% interest earned year on year?
3) If we reached FRS in RA we can absolutely withdraw everything we want except FRS regardless of where the money come from (eg Top Ups, Voluntary Contribution, Interest Earned)?
1) Is there any drawbacks to contribute the full Annual Limit of $37,740 from age 22 onwards till age 55?
2) Can I use the CPF SA as a high yield savings account whereby I just withdraw the interest earned from the previous year for daily usage for the following year? Meaning to say can I live on the 4% interest earned year on year?
3) If we reached FRS in RA we can absolutely withdraw everything we want except FRS regardless of where the money come from (eg Top Ups, Voluntary Contribution, Interest Earned)?
Hi Alvin,
1. Saving as much as possible and as early as possible can only be a good thing especially with compound interest in the mix.
2. You can do that from age 55 if you still have money left in your CPF-SA once your retirement sum option (BRS, FRS or ERS) is locked in your newly created CPF-RA then.
3. Anything above the FRS can be withdrawn from your CPF account at age 55.
Hi AK,
If one has reached the Full Retirement Sum limit and is over the age of 55, will they still get the tax exemption for the $7000 cash top up, assuming that they have not reached the Enhanced Retirement limit?
Thanks
Hi Yan,
Older than 55?
No top ups to CPF-SA is allowed.
You are allowed to top up your CPF-RA if it has yet to hit FRS.
The Top Up will get income tax relief.
You have to decide on BRS, FRS or ERS at age 55 but top up is only till FRS.
ERS is achieved by transferring money from SA/OA to RA.
Reader says...
Let's say my medisave is already $52K for 2017 and next year the cap is $54.5K.
My employment contributes more than the $2.5K increase e.g. $3K in medisave cap for 2018.
So even if i top up $2.5K medisave next year in January, I am not entitled to the VC-MA tax relief right? How about the interest calculated
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AK says...
If we contribute $2.5K to our MA at the start of the year, this sum will get 4% interest for the full year. So, that is $100.
In your case, if you do that, you would hit the BHS of $54.5K and you will still get income tax relief on this $2.5K voluntary contribution to the MA.
Then, all your mandatory CPF contributions from employment for the year will only go to your OA and SA. Nothing goes to your MA.
Reader says...
thank you for posting all the articles on how to maximize $$.
Can i check,
Lets say i have contributed:$7000 (Cash) in 2018 .
can i still do transfer from OA to SA?
is the limit $7000 ?
AK says...
I assume that the $7K is a top up to your SA.
If your SA has yet to hit the FRS, you can do OA to SA transfer even after this $7K top up.
The limit is the FRS. No transfer is allowed once your SA hits the FRS.
Jack James says...
By following Assi AK advices diligently , my SA hit MS this year . No more S$7K tax relief for next year . But I see it as a good problem .
"If AK can do it, so can you!" - AK
CH CH Ng says...
I was wondering if I topped up the SA 7k for tax relief am I able to claim the $2.7k in the MA increase also..looks like need a phone call to CPF again
Goh Beng says...
top-up is for SA/MA, so for your example only 7k eligible for tax relief
AK says...
I know it can be confusing. :)
Top Ups and Voluntary Contributions (VC) are different.
We Top Up SA and RA but we do VC to the MA.
One is a Top Up and another one is a Voluntary Contribution.
I would say "yes".
Reader says...
Do you know if there is a limit on the maximum VC I am able to make?
If so, how should I go about achieving the maximum amount to contribute?
AK says...
Read this blog. ;p
Lim Ho says...
If I top up 7k to SA and VC 1k to medical account, how much tax relief will I get?
7k or 8k?
AK says...
I can only share ideas.
For exact computation, give CPFB or IRAS a call. ;)
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