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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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