The end of the year is almost here again. For some it's time to count how much we've spent in 2012. For others, it's time to take stock of how much we've earned, so that we can contribute enough into our SRS accounts to save on tax. This month we examine how the Supplementary Retirement Scheme (SRS) helps us to both, save for retirement as well as decrease tax payable. Sounds too good to be true? Read on...
Killing 2 Birds with 1 SRS Stone: Retirement Savings + Tax Re
What is the Supplementary Retirement Scheme (SRS)?
It is a voluntary savings scheme introduced by the Government that encourages saving for retirement. However, it is used mainly to reduce income tax. Every dollar that we contribute to our SRS account reduces our taxable income by the same amount. Thus, it may be possible to move down to a lower tax bracket, and pay less tax overall, by putting cash into the SRS.
Killing 2 Birds with 1 SRS Stone: Retirement Savings + Tax Re
What is the Supplementary Retirement Scheme (SRS)?
It is a voluntary savings scheme introduced by the Government that encourages saving for retirement. However, it is used mainly to reduce income tax. Every dollar that we contribute to our SRS account reduces our taxable income by the same amount. Thus, it may be possible to move down to a lower tax bracket, and pay less tax overall, by putting cash into the SRS.
For example:
The maximum yearly contribution is $12,750 for Singaporeans and PRs and $29,750 for foreigners.
Only half of withdrawals made after the statutory retirement will be subject to tax. Moreover, withdrawals can be stretched over 10 years. Thus, if our total income (including SRS withdrawals) at that time is less than the first tax bracket, we won’t have to pay any tax.
Things to Note about SRS
If we withdraw money before the statutory retirement age (currently 62), we need to pay the full tax as well as a 5% penalty. Thus we have to be certain that we don’t need the liquidity.
To enjoy tax deductions for next year (i.e. 2013), we have to contribute before 31 Dec this year (i.e. 2012).
Growing our SRS mone
Only half of withdrawals made after the statutory retirement will be subject to tax. Moreover, withdrawals can be stretched over 10 years. Thus, if our total income (including SRS withdrawals) at that time is less than the first tax bracket, we won’t have to pay any tax.
Things to Note about SRS
If we withdraw money before the statutory retirement age (currently 62), we need to pay the full tax as well as a 5% penalty. Thus we have to be certain that we don’t need the liquidity.
To enjoy tax deductions for next year (i.e. 2013), we have to contribute before 31 Dec this year (i.e. 2012).
Growing our SRS mone
SRS money can be invested into various financial products. If we simply leave the money in the SRS account, we will only be receiving the prevailing bank savings rate (e.g. 0.125% per year). Thus it would be wise to maximise the money through investments. Talk to your Financial Services Consultant for more optionsEmployers may also contribute to their employees SRS accounts and claim full tax deduction. Employees will enjoy tax relief on the amount contributed by their employer.
Opening of SRS Account
SRS accounts are operated by the local banks (DBS, OCBC, UOB). Please contact your Financial Services Consultan if you’d like help in opening or contributing to the SRS.
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