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5 Ways To Make Your CPF Retirement Savings Work Harder – CPF top-up tax relief

CPF top-up tax relief: Want to start growing your retirement funds? Here are five ways to make your CPF savings work harder

Stretching your savings for retirement is a smart way to secure your financial future. It’s never too early to start. Your retirement fund — which may include payout from your Central Provident Fund (CPF) Special/Retirement Account and MediSave — will be a source of income for you in future.

While there are many ways to save for retirement, one way that’s easy and risk-free is by optimizing your CPF contributions. Here are five tips to help you maximize how much you can save:

1) CPF top-up tax relief: You can transfer your CPF-OA to your Special Account if you are below 55!

Special Account (SA) is a special type of CPF account that gives you an attractive base interest rate of 4% annually — nearly twice the Ordinary Account (OA)’s base interest rate of 2.5% per year.

transfer cpf oa to sa

While the bulk of your CPF contributions is automatically channelled to your OA, you can transfer these funds to your SA under the Retirement Sum Topping-Up Scheme.

Hey everyone! Guess what?

The first $60,000 (capped at $20,000 for OA) of your combined CPF balances earn you an additional 1% interest per year! That means your SA savings can earn up to 5% interest per annum.

This sounds great! But there’s a catch: You CANNOT transfer money from your SA back to your OA. So just be sure that you won’t need your OA to pay back any big-ticket items like a new house before making this transfer!

Plus there’s another perk in the scheme: members who are below age 55 can transfer their OA to SA up to the current Full Retirement Sum. You can check how much you can receive through my cpf Online Services.

2) CPF top-up tax relief: You can top up your CPF Special/Retirement Account with cash

Are you still not sure if you should top up your CPF Special Account or Retirement Account? If you’re still on the fence, consider this: the government will give you a personal income tax relief of up to $8,000 (previously $7,000) per calendar year when you top up your CPF SA/RA with cash.

topup CPF Special Account

A personal income tax relief cap of $80,000 applies.

Remember that there are limits on how much you can top up your CPF accounts. If you’re below age 55, you can top up your SA to the current Full Retirement Sum (FRS). If you’re age 55 and above, you can top up your RA up to the current Enhanced Retirement Sum (ERS).

You can save on another $8,000 taxable income by doing a top-up for your…

…spouse, parents, parents-in-law, grandparents, grandparents-in-law, or siblings!

One of the most important things you can do for your loved ones is to leave them financially prepared for retirement.

You can top up their Special or Retirement accounts so they can enjoy higher monthly payouts in retirement and also earn attractive interest rates of up to 6% p.a.

Read more about Retirement top-ups for loved ones.

Doing this lets you save on another $8,000 (previously $7,000) of taxable income.

3) CPF top-up tax relief: Do you know that you can do a voluntary contribution to your MediSave Account?

Your CPF Medisave Account (MA) can be used to pay a variety of medical and hospitalisation expenses, especially after retirement. That’s why it’s important to put money aside in your MediSave account.

Grow your CPF retirement savings by doing a voluntary contribution to your MediSave Account (MA), which earns a base interest rate of 4% annually. Use the MA for certain medical care and hospitalisation expenses, which will come in especially handy after retirement. Learn more about Top up your MediSave Account here.

Gro Retire Flex Protection Benefit

The good thing about a voluntary contribution is that it can earn you tax relief. The amount you can contribute to your Medisave account, though, is subject to the CPF Annual Limit or the Basic Healthcare Sum (BHS), whichever is lower. For example, if your CPF Annual Limit in 2020 is $37,740 and your BHS is $66,000, you can only do a voluntary contribution of up to $37,740.

If you make voluntary contributions above the CPF Annual Limit, these will be refunded to you without interest and will not be eligible for tax relief.

4) Are your property loans reducing the amount of CPF funds in your accounts?

This may happen to some people who take up home loans to finance their new homes.

You’ve read about how much interest you can earn from your Ordinary Account (OA)? At least 2.5% p.a., but you might have also heard that there are some other benefits to keeping a small amount of money in your OA as well. For example, you can use your OA to pay for your housing loan if you ever lose your job and need extra cash until you find another one.

Buying a home is a huge financial commitment. HDB has introduced a new loan scheme that allows you to keep up to $20,000 in your Ordinary Account (OA) when you’re taking a housing loan.

Balance your home loans between cash and CPF!

This means that, when you’re getting ready to buy an HDB flat and choosing how to finance it, you can now choose between getting a bigger loan from HDB or keeping more savings in your OA.

Read more about Retain $20,000 in your Ordinary Account if you are taking a housing loan.

5) Withdraw your CPF later than 55…

You can withdraw from your CPF from age 55. Read more about Understand withdrawal options from 55

The first option allows you to take out up to $5,000 from your SA and OA, OR what’s left in your OA and SA after you have set aside your Full Retirement Sum (FRS), or the Basic Retirement Sum with property— If you own any property with a remaining lease that will last until age 95.

cpf withdrawal at age 55

You don’t have to! You can withdraw it anytime after reaching 55 if you want, or even make a partial withdrawal, leaving some funds in your account for future use. And if you do decide to withdraw, you’ll be able to enjoy the attractive interest rates earned in your account, which can continue to grow.

Takeaway: When it comes to securing your retirement, a little planning goes a long way!

The bottom line is that you can do so much with your CPF, and each of these options will allow you to make the rest of your (and your family’s) life comfortable. As always, there are challenges that come with every option. The number of contributions you made, as well as the amount of time it will take for you to reap the returns for your savings, all have a role to play in determining the course of your financial future.

But if done right, using your CPF to supplement your retirement can be a great way to ensure that you don’t lose out on those golden years altogether.

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