Saturday, 5 July 2014

How to Get Income Tax Savings While Saving for Retirement

   With increasing average lifespan, it is important that you have retirement savings set aside in a retirement fund.

   CPF in Singapore automatically sets aside a portion of salary into a Retirement Account (or Special Account), which earns 4% interest annually. With inflation averaging 3.78% over the past 10 years, this is a good way to protect your retirement savings and ensure it grows alongside the cost of living in Singapore without active investment.

   What's more, you get to claim additional income tax relief of up to $14,000 for voluntary cash top-ups to the Retirement/Special Accounts of your own or family members!


  For Singaporeans, a portion of our salary is automatically set aside each month into our Central Provident Fund ("CPF"), which is further split in an Ordinary Account, Special Account and Medisave, earning interest at 2.5%, 4% and 4% respectively. 

  With CPF relief on compulsory contributions, a portion of your salary is immediately set aside for your retirement, even before the government gets a cut i.e income tax! In effect, this means you 'pay yourself' before you 'pay the government'. In addition, cash contributions to your Special/Retirement Account will qualify for additional CPF top-up relief of up to $14,000 - with effective tax rates of between 1.3% to 1.5% for average earners, this will mean being paid $196 (1.4% of $14,000) to save $14,000* at an interest rate of 4% per annum!

  CPF top-up relief is capped at $7,000 for cash contributions to your own Special/Retirement Accounts and $7,000 for cash contributions to the Special/Retirement Accounts of family members. With the flexibility to opt for GIRO payments for CPF contributions, it is easy to automate the transfer of monthly household contributions to your parents into their Retirement Accounts (that's if they do not require your money for daily expenses)!

  What's more, you get a total of $196 each year in income tax savings from CPF top-up relief for a one-time GIRO set up! Click here to find out how!

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