Reduce Income Tax: CPF Retirement Sum Topping-Up Scheme

It is the tax season again whereby every dutiful Singapore contributes to nation building. Heartland Boy would like to introduce the CPF Retirement Sum Topping-Up Scheme and the importance of it when filing for your income tax. Heartland Boy is confident that that almost every young working adult can take advantage of the CPF Retirement Sum Topping-Up Scheme to immediately reduce his or her income tax expense.

How the CPF Retirement Sum Topping-Up Scheme works

The CPF Retirement Sum Topping-Up Scheme allows CPF members to build up their retirement nest by topping up your own or your loved ones’ accounts. Topping up your spouse or parents’ CPF would qualify under the definition of loved ones. The added beauty of this scheme is that members can also qualify for CPF Cash Top-Up Tax Relief during the process, provided that the following criteria are met:

Below 55	Use cash to top up your Special Account and that your existing Special Account does not exceed the Full Retirement Sum*.
Above 55	Use cash to top up your Retirement Account and that your existing Retirement Account does not exceed the Full Retirement Sum*.

*As of 2016, the Full Retirement Sum is S$161,000. The FRS increases every year to catch up with inflation. Note that cash top-ups beyond the current Full Retirement Sum will not be eligible for tax relief.

You can read about Heartland Boy’s experience of topping up his mum’s Retirement Account here.

The amount of tax relief that you enjoy is the amount of cash that you contribute to your Special Account or Retirement Account (if you are above 55 years old), capped at S$7,000 per annum. The CPF Retirement Sum Topping-Up Scheme therefore allows you to reduce your chargeable income through tax relief, and eventually enable you to reduce your income tax expense.

Advantages of the CPF Retirement Sum Topping-Up Scheme

1. Enjoy Tax Relief

• The greatest benefit offered by the CPF RSTU is tax relief. Make full use of it when your Special Account or Retirement Account has not exceeded the Full Retirement Sum yet. Heartland Boy would also advise young employees to top up their CPF SA before topping up their Supplementary Retirement Schemes.

2. Almost Every Young Adult Is Eligible

• Young working adults are especially eligible because it takes at least 5.5 years to exceed the Full Retirement Sum, assuming that your mandatory contributions are maxed out every year and that you transfer all your OA to your SA. (Note: The Mandatory CPF Annual Limit as at 2016 is $37,740. Eligibility for RSTU is not based on CPF Annual Limit. Rather it is based on whether your Special Account has reached FRS)  Therefore, young working adults should make use of the CPF Retirement Sum Topping-Up Scheme to reduce their income tax expenses. OKAY, even if you are that overachiever that managed to achieve the Full Retirement Sum within 6 years, you can still explore cash top-ups to your loved one’s Special Account/Retirement Account* up to the Full Retirement Sum to enjoy tax relief. In this process, you can also help grow your loved one’s retirement funds so that they can enjoy a higher payout from CPF LIFE. (Lifelong Income for The Elderly)

*Do note that even though you may have multiple loved ones, the total cash top-ups relief applicable is capped at S$7,000 per category per year.

Disadvantages of CPF Retirement Sum Topping-Up Scheme

Cash is King

• It is common to have the mentality that it is safer and better to always have cash by your side, especially in today’s volatile market. Therefore, cash top-up into your Special Account is truly a decision not to be taken lightly. Heartland Boy suggests that setting up an emergency fund should be the first financial goal of any young working adult, and only after this has been accomplished should cash top-ups into your Special Account be considered.
• Even after setting up an emergency fund, some people still feel difficult to part with cash. Heartland Boy would then preach about the virtues of delayed gratification, and how “suffering” a little now would go a long way into having a better tomorrow.

Irreversible Process

• Cash top-up into your Special Account is an irreversible process. Before the age of 55, savings in the Special Account cannot be withdrawn and utilized for any purpose, including paying off your housing mortgages or funding your child’s tertiary education.

Not Utilized For Computation To Meet Minimum Sum For Investment

• Cash top-ups to your Special Account cannot be utilized for computation to meet the minimum sum for investment. Currently, the minimum sum required in your Special Account is S$40,000, before you are allowed to use the excess balances for CPF Investment Schemes (CPFIS).

Not Utilized For Computation To Meet BRS In Your Retirement Account

• The Basic Retirement Sum (‘BRS’) is $80,500 in Year 2016. The cash topped up into your CPF under the RSTU scheme cannot be computed as part of your criteria to meet the BRS. To find out more about how the RSTU affects your withdrawal limits, you can read this article here where there are complete scenarios to illustrate the amount you are able to withdraw from your CPF.

Apply For CPF RSTU Online

The process to apply for CPF Retirement Sum Topping-Up Scheme online is super simple and manageable. Here is a step-by-step guide on how to apply online.

1. Log in online to cpf.gov.sg with your SingPass
2. Under Online Services, choose “My Request”
3. From there, expand the option of “Building Up My/ My Recipient’s CPF Savings
4. Under “Using Cash”, please select “Contribute To My/My Recipient’s Special Account” (if you are below 55) via either internet banking or cheque as shown below.

•  Please apply the CPF transfer to Self and ensure that payment is made using Cash.

• Confirm the disclaimer policy and key in the amount you would like to transfer!

Heartland Girl Enjoyed Tax Relief via the CPF Retirement Sum Topping-Up Scheme

In Heartland Boy’s previous article on transferring from Ordinary Account into Special Account, he also mentioned that Heartland Girl enjoyed tax relief via the CPF Retirement Sum Topping-Up Scheme. Towards the end of 2015, Heartland Boy realized that Heartland Girl was on the verge of “upgrading” into a higher income tax bracket. As a result, Heartland Boy advised Heartland Girl to top up her Special Account with cash to enjoy tax relief and reduce her chargeable income. Furthermore, this cash top up made extra sense as she had less than S$60,000 accumulated balances in her CPF then. As a result, this additional deposit in the Special Account is now earning a guaranteed 5% per annum. Not too shabby indeed.

In addition, find out how Heartland Boy enjoyed tax relief by performing a RSTU for his parents. As a result, his parents are earning 6% interest rate from CPF Board!

Alternatively, you might want to consider a cash top-up to your own or your loved one’s Medisave. This entitles the beneficiary for tax-relief as well.