Is SRS worth your time?

SRS is the lesser known tax-saving scheme that rewards you for saving. 

What is SRS?

The SRS complements the CPF – CPF savings are mainly to ensure your basic retirement needs are met. Many Singaporeans do use their CPF money to fund their housing, education and medical needs.

Unlike the CPF scheme, SRS is completely voluntary.

So, how does this SRS work?

While funds in a CPF account earns a risk-free interest between 2.5% to 5%, funds in a SRS account generate a nominal interest of 0.05% per annum. This is similar to the base interest rates on most bank savings accounts in Singapore. The major advantage SRS offers is its tax benefits.

Voluntary contributions are eligible for a dollar-for-dollar tax relief with an annual cap of $15,300 for Singapore citizens and permanent residents and $35,700 for foreigners. Contributions can be at any time and as often as you like, subject to the maximum SRS contribution for the year.

The table shows the tax benefits of contributing to a SRS account, and people with higher taxable income have greater incentive to contribute to their SRS account, as they would be able to reduce their income tax by a larger amount.

Do keep in mind that there is a personal income tax relief cap of $80,000 that applies from Year of Assessment 2018 to SRS contributions made on or after 1st Jan 2017. As SRS contributions made cannot be refunded, SRS members who make SRS contributions on or after 1st Jan 2017 should take note of the overall personal income tax relief cap. They should evaluate whether they would benefit from tax relief on their SRS contributions and make an informed decision accordingly.

Investing your SRS funds

Unused contributions in your SRS account only grows at 0.05% per annum. To avoid being eroded by inflation, you will have to invest your SRS funds. Investing in SGX listed securities like shares, STI ETF and REITs is easy. After you have created your SRS account, you can approach your stock brokerage for the linkage. Buying and selling stocks works the same way on an online trading platform except you have to tick the SRS checkbox.

You are also not restricted to assets or products under your SRS operator – you can invest in DBS bonds even when your operator is UOB. You can find more details on the following operators’ websites – DBS POSB OCBC UOB

Withdrawal Rules

The main purpose of SRS is to assist in building a retirement fund. Technically, you can withdraw the funds from your SRS account at any time. However, if you were to make a withdrawal before the statutory retirement age (currently at 62), 100% of the withdrawn amount will be taxed and there will be a 5% penalty charge as well.

The good news is that investment gains accumulate tax-free and if you withdraw your savings only when you reach the prescribed retirement age, 50% of the withdrawal amount will be taken as taxable income. SRS members also have a 10-year period to make withdrawals from their account.

If you’re a foreigner, the penalty for early withdrawal does not apply. Only 50% of the amount fully withdrawn is subjected to tax however, you have to fulfil 2 criteria – you must have maintained the SRS account for at least 10 years from the date of the first contribution and have been a non-Singaporean for a continuous period of 10 years before the date of withdrawal.

Here’s how you can ensure that you’re getting the best out of this scheme: 

To minimise tax, it is best to keep your yearly withdrawals under $40,000.

Is SRS worth it?

SRS certainly provides tax saving benefit; however high-income earners seem to benefit more from this scheme. It is also crucial to take note of your contribution and withdrawal amounts to take full advantage of the tax-relief benefits.

Lastly, you will also need to consider the investment options after having deposited your money in a SRS account. Weigh the pros and cons before deciding to open a SRS account. When done right, it might just be worth it.

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