Who's contributing to their SRS account this year?

[specuvestor]

Buffett will tell you that PRE TAX money is always superior to post tax. Incidentally that is what maths will conclude

Death is 50% taxed at marginal tax rate

http://www.iras.gov.sg/irasHome/page04.aspx?id=3346

[thefarside]

If your marginal tax rate is high (>15%), it means you are earning good income and the key to your financial well being may lie in grooming your ability to save and invest, over a period of 15-20 years during your peak earning years. In this case SRS is not likely to form a large pot of your final reserve as you head into your sunset years.

If youar marginal tax rate is low, you get little benefit from the tax savings - just pay and have your capital on hand (either as cash or in the form of liquid investments) if you need it for some reason.

Still, some people find it hard to maintain savings discipline and SRS provides some sequesteration to make their savings plan "work". Others have said they treat SRS as very long term money and they can therefore "invest it differently" - whatever that means. I used to contribute for 3 years, but no longer do so as I find it better to pay the tax and hold the cash unencumbered.

[specuvestor]

^^ I actually agree. There are other considerations besides financial optimization.

There is also the very minute chance that Francois hollande becomes PM of Singapore and increase the marginal tax rate irresponsibly but in general those who are looking for SRS as tax shield will generally reach the same conclusion. YMMV as usual.

I also treat Special Account top up as additional tax shield and quasi bond portfolio. I think these schemes are designed for the middle class in mind and not consequential to High Net Worth

[palantir]

thanks specuvestor. seems the usefulness of the SRS is a little dimmer for me.
1. the earlier you contribute
2. the better your investment performance
the higher your taxes which you may pay.
This hasn't taken into account the future tax rates upon withdrawal, which even the PM acknowledges that it may be on the rise
http://business.asiaone.com/Business/New...67819.html

throw in the kicker that if you pass away. it is all deemed as withdrawn.

i better review my SRS contributions. might be better to live with the certainty of today's tax rates than the above uncertainties.

anything i got wrong above?

My view is that SRS account can be used as another bucket of retirement money. Then you have another bucket of money from personal saving, CPF account etc. One can cap the amount in SRS at $400,000 by the time one reaches the retirement age (say 62).

Except for those high earners, one should be in mid 30s if he is able to contribute $10k per year into SRS. Doing consistently for another 20 years means the account will have $200k as capital. Unless one invest in high risk high gain vehicle, the capital growth (including dividends) may probably can reach $400k at max.

So by age 62 and alreay retired, one just withdraw $40k per year over 10 years for his monthly expenses. This is below the chargeable income (based on $20k now) and should be able to avoid being taxed. Of course, the chargeable income or the tax rate might be raised in future. One will just adjust accordingly

[cheaponana]

thanks specuvestor. seems the usefulness of the SRS is a little dimmer for me.
1. the earlier you contribute
2. the better your investment performance
the higher your taxes which you may pay.
This hasn't taken into account the future tax rates upon withdrawal, which even the PM acknowledges that it may be on the rise
http://business.asiaone.com/Business/New...67819.html

throw in the kicker that if you pass away. it is all deemed as withdrawn.

i better review my SRS contributions. might be better to live with the certainty of today's tax rates than the above uncertainties.

anything i got wrong above?

My view is that SRS account can be used as another bucket of retirement money. Then you have another bucket of money from personal saving, CPF account etc. One can cap the amount in SRS at $400,000 by the time one reaches the retirement age (say 62).

Except for those high earners, one should be in mid 30s if he is able to contribute $10k per year into SRS. Doing consistently for another 20 years means the account will have $200k as capital. Unless one invest in high risk high gain vehicle, the capital growth (including dividends) may probably can reach $400k at max.

So by age 62 and alreay retired, one just withdraw $40k per year over 10 years for his monthly expenses. This is below the chargeable income (based on $20k now) and should be able to avoid being taxed. Of course, the chargeable income or the tax rate might be raised in future. One will just adjust accordingly

My consideration is that if you are an investor and contributing money every month for investment in shares, then why not just put aside this sum of money, currently at $12750 in SRS then use it to invest? Aside for the $2 per 1000 share that you need to pay as well as $2/quarter, the amount of charges that you pay your broke is the same. Im sure the amount that you save in taxes every year can help to offset these $2++ charges by the bank? If you are going to keep investing anyway, then there is no difference whether the money is locked up in SRS or kept mobile outside. This will only make a difference to those who may need the liquidity to buy a house for instance.

[bran]

thanks for the responses guys. the difference is the taxes i guess.
the quesiton is really is it better to invest before tax dollar and get taxed on the exit? or to invest the after tax dollar? as specuvestor had pointed out.
yes, if you ran the numbers, it should be better to invest the before tax-dollar.

so after considering, the two real issues are the
1) uncertainty around the tax rates around withdrawal.
2) your death before you can withdraw. (50% of the balance is taxed at the marginal tax rate upon your withdrawal).

[palantir]

Aside for the $2 per 1000 share that you need to pay as well as $2/quarter, the amount of charges that you pay your broke is the same. Im sure the amount that you save in taxes every year can help to offset these $2++ charges by the bank? If you are going to keep investing anyway, then there is no difference whether the money is locked up in SRS or kept mobile outside. This will only make a difference to those who may need the liquidity to buy a house for instance.

Is there charges for SRS Account? I am using UOB and so far no charges incurred for past many years

According to UOB site: All SRS account charges are waived till 31 Dec 2013.

[DavidChoy]

UOB no charges.. DBS has some underlying charges. Best if you check out their website.

Here's an interesting article on SRS.

http://www.moneydigest.sg/makes-sense-co...in-extent/