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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.
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.
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11 comments:
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.
https://www.cpf.gov.sg/Members/FAQ/schemes/other-matters/cpf-contribution-for-employees#faq2185015
Any VC made in excess of the CPF Annual Limit will be refunded without interest.
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.
Bob Lee says...
If someone were to hit the CPF Annual Limit of $37,740 in 2019, can he still get tax relief for his voluntary contribution of $2400 so as to hit the new Basic Healthcare sum of $54,500 in MA? Thank you.
AK says...
If you already hit the CPF Annual Contribution Limit through Mandatory Contribution, you don't have to do this because you would already get the full income tax relief from hitting the Limit already.
Do Voluntary Contribution to MA only if your Mandatory Contribution falls short of the Annual Contribution Limit.
Sometimes I wonder why people have all these doubts on CPF and why not take a swing to CPF board to get all their doubts answer?
Asking another person, or a peer may somehow subject to misled info, misinterpreted info? No?
Unless the topic is not important to you, that is my view.
Hi WY,
Always good to hear from the horse's mouth. ;)
Hi AK,
I share with you on my experience. As you may know that I have left the full-time employment since May 2019, I encounter CPF refund almost every year. I think that this is because I made the voluntary CPF contribution early in the year. The refund was mainly due to unexpected excess CPF contributions due to the given bonus in respect of the full-time employment. I would expect the bonus to be same as the previous year. Sometimes, the outcome turns up to be beyond my expectation. Such expectation was good as I had more contributions from the previous employers. It's always good to prepare for the unexpected circumstance and anticipate in advance. One can adopt the different approaches in accordance to the everchanging circumstance.
With my exit from the full-time employment last year, I am able to forecast and make the voluntary contribution with much confidence. As mentioned before, I made the early contribution of $2,800 to the Medisave account to make the cap maximum amount of $60,000. I mentioned before that I am keeping an open mind on the balance contribution of about $35K. Such amount will not be subject to tax-deductible. The Medisave voluntary contribution may also be not applicable to me in the event if I remain unemployed for the rest of the year.
It's great to have options. I might proceed to make the balance amount of $35K in January 2020. This will earn me more interest given that this was made in the early January 2020 and it will have the time to generate the interest for the entire year.
Ben
Hi Ben,
It boggles my mind that, to this day, there are people who still say that the CPF is a national PONZI scheme. O_o
See:
The CPF is really a national PONZI scheme!
Having options in life can only be a good thing.
See:
Financial freedom or freedom in retirement?
Congratulations! :D
Hi AK,
My take is that some of the things cannot be explained. I believe that this is due to the policy of the Authority which makes people have such views. I will not delve further into politics lest kanna by POFMA. I think that different people have their views on the policies implemented by the Authority. There are no right or wrong answer and depend on the individuals' perspective.
Coming back to FIRE, I think that it is important to have some reservation on the CPF given that there might be some changes in the policies in the years to come. What is applicable to current context might not be applicable in future. I am of view that it will be prudent to keep an open minded approach and this will details depending on the cash component outside of CPF savings as well as SRS saving which are under the restriction by the Authority. It is akin towards having many baskets to spread out the risks. This brings the the luxury and liberty of having options in life which is priceless as per my perspective.
Ben
Hi Ben,
We have to be careful of what we say even in cyberspace these days.
That is for sure.
Protection from Online Falsehoods and Manipulations Act (POFMA) is no joke.
Don't play play. ;p
I would say make CPF savings (together with SRS savings, if we have some) a cornerstone in our retirement funding adequacy strategy and not the entire foundation.
In fact, that is what I have been saying all along. :)
See:
Building a cornerstone in retirement funding with CPF.
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