There is an article in the Sunday Times today on how to maximize the use of your CPF.
Let me summarize the key points and share with you a tip on how to reduce your tax bill while doing something which you do anyway.
• CPF OA earns a guaranteed interest rate of 2.5% and can be used for housing, investing, education and approved insurance.
• CPF SA and CPF MA earned guaranteed interest rate of 4%.
• The first $60,000 of your combined CPF earns an extra 1%.
• When you turn 55, a Retirement Account will be created and you will need to transfer the minimum sum in and for me, that will be $155,000.
• You can enjoy tax relief of up to $7,000 if you contribute cash into your own CPF SA and another $7,000 if you top up the CPF SA of your spouse and parents (and loved ones)
How to reach your minimum balance of $155,000 faster and with less cash?
• If you want your CPF balance to reach the minimum balance faster and with less capital due to compounding effect, consider transfering excess lump sum cash from your CPF OA to CPF SA when you are younger. This will allow the compounding effect to take place as CPF OA compounds at 4% (without considering the effect of the extra1%).
Tax Savings Tip: How to "magically" reduce your tax bill without any additional efforts?
This is something which too many people are not aware of it or just plain lazy. Let me share them with you.
• your parents are over 55 years old
• you give them a combined allowance of more than $583 each month.
• please check with CPF if your parents have met the necessary conditions for cash withdrawals from the CPF-RA
Action required on your part
• Using the CPF portal, use Internet banking to transfer a lump sum $3,500 to each of your parent (my preference is at the end of each year when you get your 13th month AWS and you get to enjoy the tax savings for that year).
• Your parents will get $583 per month in cash for the next 12 months.
• You get a tax deduction of $7,000 for the tax year that you make that contribution.
Happy tax reducing. Like my facebook if you are going to use this tip :-P