There are some Singaporeans who are vehemently on Team GiveMeBackMyCPF, while others are equally evangelical about transferring MORE money to their CPF to earn those sweet interest rates.
But if you’re still on the fence about whether topping up your CPF is a good idea, this article will explain the pros and cons of doing so.
Hint: Topping up your CPF entitles you to some tax relief, preventing some of your hard-earned money from going into the government’s coffers.
Why do CPF top ups?
Technically, you can make make voluntarily top-ups to all of your CPF Accounts — your Ordinary Account (OA), Special Account (SA), Medisave Account, or Retirement Account (RA) if you’re 55 and above.
But you can only claim tax relief for topping up your SA / RA or MediSave Account, so that’s what we’ll be focusing on here.
There are 3 main reasons to top up your CPF accounts:
1) Retirement payouts: Having more money in your SA or RA boosts your CPF LIFE retirement payouts when you are finally old enough to receive them. The money in these accounts cannot be used for housing, so they will sit in the account accumulating interest until you are eligible to make withdrawals.
2) Interest rates: CPF offers virtually risk-free interest rates on all your CPF savings, but the SA and MediSave get higher rates than the OA. The interest rate for RA, SA and MediSave is currently 4%, with an extra 1% on the first $60,000 (and an extra 1% on the second tranche of $30,000 for over 55s) of the combined balances across all your CPF accounts.
3) Tax relief: You can reduce your taxable personal income by topping up your own SA or RA or that of your family members, as well as your own MediSave account.
What is the downside? Once you transfer your money to your SA, RA or MediSave account, it is stuck there forever until you can make a withdrawal or claim. You can’t transfer the money into your OA (even if you originally transferred it from your OA), neither can you use it for housing.
How much tax relief can you get on CPF top ups?
You can get tax relief on voluntary contributions to your SA / RA and MediSave Account.
1) CPF Cash Top-up Relief (SA / RA)
You are entitled to a maximum of $7,000 worth of tax relief for making voluntary CPF top ups to your own SA / RA.
You are also entitled to up to $7,000 worth of contributions made to the SA or RA of the following types of family members:
- Parents or parents-in-law
- Grandparents or grandparents-in-law
However, for spouses or siblings, they must not have had an annual income of more than $4,000 in the year preceding the top-up, including non-taxable income like bank interest, dividends and income from overseas. Otherwise, you don’t get your tax relief.
The tax relief will be subtracted from your taxable income. So, if your taxable income is $50,000 and you make a $7,000 top-up to your SA and a $7,000 top-up to a parent’s RA, you will only have to pay taxes on $36,000 ($50,000 – $7,000 – $7,000) of your income.
2) Voluntary Medisave Contributions Tax Relief
You also get tax relief for making voluntary MediSave contributions.
The maximum amount of tax relief you can claim will be calculated based on the lowest of the 3 criteria:
- The amount of voluntary cash you transferred to your MediSave Account
- Your annual CPF contribution cap for the year minus the Mandatory Contributions transferred by your employer or yourself as a self-employed person
- The Basic Healthcare Sum ($63,000 in 2021) minus your Medisave Account balance before making your voluntary contributions
What are the CPF top up limits?
There is a cap of $80,000 on the amount of tax relief you can claim in total each year, although you can top up your CPF above and beyond that amount.
But other than the tax relief limits, there are also some top-up limits imposed by the CPF Board regardless of whether tax relief is involved.
The CPF Annual Limit is a cap on how much money can be paid into your CPF accounts every year. It includes all contributions made in a year, whether compulsory or voluntary, across all CPF accounts.
The CPF Annual Limit is $37,740 in 2021.
So, if your CPF contributions from work (employer and employee) add up to $25,000 in a year, you can only top up $12,740 before you bust the CPF Annual Limit.
How to top up your CPF
To top up any or all of your CPF accounts, log into the CPF website with your SingPass.
Once logged in, click on [My Requests > Building Up My / My Recipient’s CPF Savings]
You can then select your preferred option. If you want to transfer money to your SA or RA right away, select one of the first two options: [Contribute to my / my recipient’s Retirement Account via PayNow QR or eNETS] or [Contribute to my / my recipient’s Special Account via PayNow QR or eNETS].
You will then be taken to the e-Cashier.
Select [Paying as a Member].
Next, select [Top up own/recipient’s SA under the Retirement Sum Topping-Up scheme] or [Top up own/recipient’s RA under the Retirement Sum Topping-Up scheme] if you’re topping up your SA or RA, and [Contribute to my MediSave (Tax deductible)] if you’re topping up MediSave.
Remember that top-ups to your OA don’t qualify for tax relief. So make sure that you don’t accidentally select “Contribute to my three CPF accounts” when you’re at the e-cashier, unless that’s what you really want.
Click [Next] and enter the amount you wish to transfer, and then make payment by PayNow or eNETS.
Tip: To save yourself from a whole lot of frustration and keyboard slamming, disable any pop-up blockers and, if necessary, raise your bank account’s payment limits before you go through this entire process.
How to perform CPF top up for your parents
The procedure for topping up your parents’ CPF RA is almost identical to that for topping up your own SA or RA.
Log into the CPF website with your SingPass and click on [My Requests > Building Up My / My Recipient’s CPF Savings]
You then select the first option: [Contribute to my / my recipient’s Retirement Account via PayNow QR or eNETS] from the available options.
When directed to the e-Cashier, under “Payer’s CPF Account Number / NRIC”, you will see your own NRIC number filled in. Replace it with your parent’s NRIC number.
Next, select [Paying as a Member] and select the payment type [Top up own/recipient’s RA under the Retirement Sum Topping-Up scheme].
Click next and enter the amount you wish to transfer, and then make payment by PayNow or eNETS.
Should you top up your CPF account?
Thanks to the super generous, almost risk-free interest rates, it can be quite smart to top up your SA early on in life and then let the money grow over the years with the help of compound interest. The tax relief is just icing on the cake.
The downside is that money in your SA stays trapped there until you qualify for withdrawals. So you want to make sure you can afford to let the cash sit there. If you have high interest debt like a credit card balance, pay that off before you locking your money away in your SA.
MediSave top-ups are not as useful as SA top ups in my opinion, so your compulsory contributions from work should be sufficient. It would make more sense to supplement your MediShield Life with an Integrated Shield Plan.
What if transferring cash to your SA is too much of a long-term commitment but you still want to grow your money for retirement? You’ll have to find another way to invest your cash then.
Another option is to use enrol in the Supplementary Retirement Scheme (SRS), which is eligible for tax relief and lets you withdraw your money if you need it and offer investment returns that are tax-free until withdrawal.
If you’re afraid you’ll need some of your cash for a home purchase, you can opt to top up all 3 accounts so that some cash goes into your OA and can be tapped on for property. You can later transfer funds from your OA to your SA, with the maximum amount you can keep in your SA being the Full Retirement Sum ($186,000 in 2021), minus any SA funds withdrawn under the CPF Investment Scheme.
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