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Sensible to do CPF OA to SA transfer?

Monday, January 22, 2018

Reader said...

Currently working, 31 years old.

Quick question - My current SA sits at $40k and MA sits at $40K.

Based on current MA limit = $54,500, remaining money will go to my SA account.

I have started contributing $7000 yearly into my SA account for tax relief.

Based on my calculation and projected increase of limit yield of 4.4% per annum on MA, my MA contribution will flow into my SA account in 3-4 years time.

When that happens, my monthly contribution to MA and SA will be around $15K/year (Including VC of $7K), taking into consideration of the 4.4% increase limit of MA per year.

With that projection again, I will hit the current FRS of $171K in 7-8 years time.

Does it still make sense to transfer my CPF OA account money to my SA account?

AK said...

Once you CPF-SA hits the prevailing Full Retirement Sum (FRS), you will no longer be able to do Top Ups to your CPF-SA to enjoy income tax relief.

So, if getting income tax relief is hugely beneficial to you (i.e. you are in a high tax bracket), you might not want to do OA to SA transfer.

However, this option of topping up the SA is also only viable if you have the free cash flow to do top ups each year.

If income tax relief is less important to you or if you do not have the free cash flow to do top ups, doing OA to SA transfer would be less demanding as it is simply moving money that is already in your CPF account. 

Bigger OA to SA transfers will also, of course, help to give your SA a bigger base faster for compound interest to work its magic.

Make sure that you do not need your OA money for any other purposes before doing this.

Related posts:
1. Know how to grow our CPF savings.
2. Purpose of CPF is to make rich richer.


AK71 said...

Jimmy Ng says...
FRS increases every year. Earlier you reach it, the earlier it can go auto-pilot (i.e. where interest earned, can help to reach the next FRS level). With youth on your side, your retirement nest egg is already secured early. So what if you have to wait till 65..... it is there and all yours too.

AK71 said...

Lee Jiahui says...
Thank you AK for promoting SA. I hit FRS at 35 yo because i listen to AK to switch mortgage repayment to cash, top up 7k SA and do OA to SA transfer. Sibeh boring, reduced cashflow, but have bragging rights after FRS milestone.

AK71 said...

Reader says...

Hi AK, can i ask for your opinion. Currently , i have $56K in the OA account.

I took a bank loan for my HDB and i am 30 yrs old. Is it a good idea that i put $25k In my OA account as buffer/ rainy day.

The rest of the $31k to be transferred to the SA account.

AK says...

Sounds like a plan to me 😉

AK71 said...

Jimmy Wee Khiang says...
AK, did you push in maximum sum into SA when you were younger? Why or why not?

AK says...
Max out the SA? Not many young people would have the financial capacity to do that. Neither did I.

Although I have shared in my blog from time to time what I did to give my CPF-SA a boost in my younger days, what is more important for you to ask is what you should do?

AK71 said...

Siew Mun Kwan says...
To be honest. I did not top my SA thru cash or OA. I just let my SA roll from mandatory contributions

Raymond Ng says...
Ditto here.
On reflection, I should have make QA transfer (spare cash) to SA to earn higher interest. Then upon 55, after setting aside FRS, reminder still reside SA which I can withdraw anytime.

AK says...
Yes, take advantage of the higher interest, give the SA a boost and let time do the rest. ;)

AK71 said...

Jack James says...

This question is too easy to answer .

(1) If you don’t use OA to pay for mortgages , transfer all OA to SA .

(2) If you can enjoy “good” tax relief , TOP up SA by S$7,000 max every year until it hits FRS ( you can’t do that anymore ) .

That’s very good guidelines for all . Free !

AK says...
That is somewhat simplistic.

Even if you do not have a mortgage to pay, it might not be a good idea to transfer all OA to SA (but maybe for only a few years) because the OA can be used for other purposes too. For people who wish to retain some flexibility, please bear this in mind.

Even if you cannot enjoy "good" tax relief, topping up the SA is a way to get exposure to a risk free, volatility free investment grade bond with a relatively generous coupon. Tax relief is but an incentive.

Ultimately, how we use the CPF to help meet retirement funding adequacy depends on our circumstances and what other resources we have at hand.

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