Sunday, 4 January 2015

Put your CPF money to work


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. 

Key Points
• 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. 

Key assumptions:
• 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). 

Effect
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



6 comments:

  1. You can only do it when your parent is above 62.

    ReplyDelete
  2. Haha really Ah. Ok will amend it.

    ReplyDelete
  3. Was checking CPF website on this. It doesn't say that parents must be above 62. It only says that it is limited by the top up balance. Contribution can be made to parents below 55 years old to their SA and if above 55 to their MA. Top up balance is the differemce between prevailing Minimum Sum and current amount in parent's SA/MA.

    ReplyDelete
  4. Thanks Lizardo. The top up is to the retirement account and I believe if they meet the CPF conditions for withdrawal, they will be able to get the cash directly each month over 12 months. One way to make sure is to call the CPF and confirm first.

    ReplyDelete
  5. Oh yes! I meant RA rather than MA. Thanks for pointing out the mistake.

    ReplyDelete
  6. Not necessary at the end of the year. We could do it at the beginning of the year to earn the 4% interest.

    The RA interest rate will be maintained at 4% per annum from 1 January 2015 to 31 December 2015, as announced on 25 November 2014. Please refer to Annex C (PDF 180KB) for the detailed computation of the RA interest rate. CPF members can visit www.cpf.gov.sg or call the CPF Call Centre at 1800-227-1188 for enquiries.May 14, 2015

    ReplyDelete

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