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Thanks to a nudge by Siew Mun, I went to read the CPF Amendment Bill 2021.
Some of my many blogs on the CPF have become outdated because of this Bill.
The changes which interest me most are the following and they will take effect from 1 January 2022:
1. Enjoy tax relief when we top up our loved ones' CPF MA.
I have always been curious why the recipient gets income tax relief and not the giver?
Well, this is now fixed.
2. Enjoy up to $16,000 income tax relief when topping up CPF MAs.
We can get up to $8,000 income tax relief for topping up our loved ones' CPF MAs.
We can also get up to $8,000 income tax relief for topping up our own CPF MA.
Take note that this income tax relief cap is shared by the RA, SA and MA.
So, previously, we would not say "Top Up" to MA but "Voluntary Contribution" to MA.
Now, when we inject money into the MA, it is a "Top Up" and it will share the annual income tax relief cap for the RA and SA.
This annual cap was $7,000.
3. Beefing up the MA is no longer part of the CPF Annual Contribution Limit.
This follows from the previous point that injection of money into the CPF MA will be considered a "Top Up" and not a "Voluntary Contribution."
What do all these changes mean for those of us who are actively using the CPF to have a strong foundation in retirement funding?
Would my strategy have changed because of these changes?
In the first 4 years of my life as a working adult, I transferred all my OA savings to my SA to give it a bigger base and more time for compound interest to work its magic.
I would still do that today if I just started my life as a working adult.
If I had extra funds, I would have pumped more money into my SA which would enjoy income tax relief at the same time.
Income tax relief will apply to the first $8,000 of Top Up from next year instead of $7,000.
Now, in my early retirement, I would continue to do yearly Voluntary Contribution to my CPF account up to the prevailing Annual Contribution Limit as I think of the CPF as a AAA rated sovereign bond with attractive coupons.
See:
$1.5 million in CPF savings by doing nothing henceforth.
The difference with this CPF Amendment Bill is that I will be able to inject a bit more money into my CPF account from next year because the MA is now under the "Top Up" scheme and not "Voluntary Contribution."
Since my CPF SA has already hit the prevailing FRS, I cannot do Top Up to my CPF SA anymore.
However, since the Basic Healthcare Sum increases yearly, there will be room for me to Top Up my CPF MA yearly.
I will provide links to this blog in some of my older blogs such as the following:
1. Ways to beef up our CPF savings.
2. Know how to grow our CPF savings?
Reference:
CPF Amendment Bill 2021 Highlights.
Read Siew Mun's comment in this blog's comments section:
Retiring by 40 is a fantasy.
Bloggy Award
23 comments:
Hi AK
Is the relief for CPF Cash Top up 8K + 8K? Currently there seem to be a cap of 7K for both self and parents.
Thanks
Hi Pirate,
Which is why I said in the blog that the income tax relief is up to $16,000 in total.
Direct from the horse's mouth:
"From 1 January 2022, members can enjoy $8,000 tax relief, up from $7,000, when they top up their own CPF account in cash. They can enjoy another $8,000 tax relief when they top up for their loved ones."
Hurrah! :D
Hurrah indeed!
I am more concerned about transferring money from OA/SA to RA or CPFLIFE.
Will it be non stopping topping up as every year the RA ceiling will increase by 5000.Or does the topping up stop if we hit the FRS by cohort. Alot of people only park extra cash and will withdraw when they need it and not intended to use it to top-up to RA.
This certainly would help one of my friends who always kanna bleed deeply by income tax. Now he got more options to lower down the income tax. Assuming his taxable income still not exceed that dangerous thin line of tier after deduction.
LOL.
Hi Alan,
Our FRS is determined at the time we turn 55 years old and will not increase as we age from then on.
So, yes, the FRS is determined by our age cohort.
For those of us who have spare cash and have yet to hit the FRS, it makes good sense to hit FRS to have a financially more secure retirement.
For those who have hit the FRS and are age 55 or older, using the CPF as a savings account makes good sense. :)
Reference:
CPF members above 55 should use it as a savings account.
Hi TDT,
I know some high income people too.
They must contribute more to nation building. ;)
I know.
Bad AK! Bad AK! ;p
Reference:
Double your income but not double your income tax.
Hi AK,
If I have already met BHS limit of 63k, can the top up still qualify as income tax relief?
Hi KJ,
If your MA has hit the prevailing BHS cap, you cannot do any Top Up until the new year when the BHS cap is raised.
For an example, see:
Voluntary Contribution to CPF MA in 2020.
Of course, from next year, it will no longer be called Voluntary Contribution but Top Up. :)
Hi AK!
Good to see that MA is no longer limited! 5% guaranteed return!
Something that I have been wondering, while there is a "shielding" method for SA at 55 years old. Is it possible for the current SA too? i.e. use it to invest then top to the FRS again, and then put back? haha possible?
Hi Pete,
Yes, the amendment is good for people like me as we will be able to contribute more to our CPF account from next year. :D
Well, not a lot more but it is still more which is good. ;)
I have never really been tempted to explore any "shielding" method but I am pretty sure what you are thinking of isn't allowed.
To be sure, check with the CPF Board. :)
Reference:
No more 'shielding' of CPF soon.
Hi,
Can I clarify the following?
Person A: Working and normally can meet full CPF contribution from salary + bonus.
Q1:Can A contribute to his own medisave on 2nd Jan to topup to BHS in addition to the 37740 contribution from salary+bonus.
Thanks.
Hi P,
Person A can do that in the new year because he can "Top Up" his MA while previously it was a "Voluntary Contribution" which would count towards the CPF Annual Contribution Limit.
Top Ups do not count towards the CPF Annual Contribution Limit and the first $8,000 of Top Up will get Income Tax Relief.
This $8,000 tax relief cap is shared by our MA and SA/RA.
Actually someone will lose out in this new scheme.
For example this year i can top up 7000 to my SA. And on the first few day of January contribute 3000 to my MA.
In this way my tax rebate us 10000. Next year I only can enjoy tax rebate of 8000.
Even if I top up for my parent the rebate is 16000 instead of 17000.
Correct me if I am wrong
Thanks
Alan
Above example is if this person hit maximum in he or her MA.If not the this person can even enjoy more rebate if he or she is to top up 7000 to SA and maybe voluntarily top up and 10000 to MA.
In this way he or she can enjoy 17000 of tax rebate.
Hi Alan,
Thank you for providing another perspective.
You have made a valid point.
The government seems to be pushing people to do Top Ups for their loved ones.
Family before self?
Singaporean version of "common prosperity?" ;p
For sure, not everyone will be happy with the changes.
AK, on January I have been topping up in the following order top up:
1. my MA to BHS
2. wife MA to BHS
3. my RA to prevailing ERS
Hi Siew Mun,
Your disciplined approach to making CPF a strong cornerstone in retirement funding is a good example for all of us. :)
At the moment, I am inclined to think that the FRS is good enough for me but I could change my mind in the future. ;p
Reference:
CPF Full or Enhanced Retirement Sum?
AK,
We have been Robbed !!!!
MBK took Accordia Golf Trust private citing the bleak future of golfing in Japan among other excuses.
But now, news media reported that Japan's Softbank is paying US$3.5b for the same assets!
As usual and all too often, retail investors have been grossly short-changed by the Scheme of Arrangement deal implemented by SGX.
How can Accordia Gold Trust transformed fm a bleak investment worth S$804m to US$3.5b in just one year?
SGX Regco must answer to this!
Oooos, forgot to attach the newslink:
https://www.channelnewsasia.com/business/softbanks-fortress-investment-buy-accordia-golf-us35-billion-nikkei-2316721
Hi Laurence,
Thanks for the update. :)
Well, I did say that Accordia Golf Trust was worth more and that the offer must be much higher than valuation.
See:
Accordia Golf Trust: Offer must be way above valuation.
Unfortunately, there were too many speculators and people who just didn't believe.
See:
Accordia Golf Trust: Reasonable or realistic price?
What to do? ;p
CPF Basic Healthcare Sum (BHS) for 2022 has been announced.
Moving up from $63,000 to $66,000. about 4.7% increase.
As my MA is consistently full, I'd wished that the interested earned on MA for 2021 can be credited into MA instead of flowing OA. Anyway, CPF did reply that the interest is paid on 31st Dec for the FY, as this new BHS kicks in 1 day later and therefore it is excess funds flowing into OA.
Well, i'd say a good problem to have, while I still can afford it.
Hi SnOOpy168,
A $3,000 increase is reasonable but I think it could have been a bit higher.
First thing to do in the new year for me is to top up my CPF-MA. :D
Reference:
Voluntary contribution to CPF-MA.
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