Why SRS accounts are a good way to save

[fat al]

if u are very good at investing, SRS is a lousy deal. Coz you are sharing 50% of your capital gains compounded at higher rate, with Govt. Which may be many times more than the tax saved compounded. Dividends received in SRS also taxed at capital gain in the future.

My thoughts are that SRS may be neutral on the rate of return but payoffs resides on the difference in tax rates. For example, the below depicts 2 scenarios, assuming one's excess funds is parked with SRS or outside SRS after tax deduction

Assume tax rate=10%
Initial SRS investment 10,000
20yrs @5% =26,533
20yrs @30% =1,900,496

Initial cash investment 9,000
20yrs @5% = 23,880
20yrs @30% = 1,710,447

Difference
initial tax savings 1,000
Difference after 20yrs @5% 2,653
Difference after 20yrs @20% 190,050

Noticed that SRS is higher than cash investment by 10%, the same income tax rate of deduction regardless of rate of return. By the way, D.O.G.'s example has the same outcome- Difference at retirement is as per the initial marginal tax rate of 20%.

Cash: $469,650
SRS: $587,062
Diff: 117,412 (20% of 587,062)


Thus, SRS will be beneficial if the withdrawal is taxable at rate lower than original marginal tax rate at time of contribution.

[tanjm]

Btw even if you have a high balance on retirement, you can buy an annuity and escape the 10 year withdrawal rule.

Take note of the death contingency before retirement. I am not sure if the law requires mandatory withdrawal and even if not, the estate administrator/trustee/beneficiaries may take this course before one gets to implement annuity program. Immediate withdrawal, although enjoying 50% waiver, may be subjected to higher taxes as a lumpsum.

I would not worry about it. If you survive till your 60's in order to cash out your SRS, the big likelihood is that you will live at least another 20 years statistically speaking.

[opmi]

Btw even if you have a high balance on retirement, you can buy an annuity and escape the 10 year withdrawal rule.

Take note of the death contingency before retirement. I am not sure if the law requires mandatory withdrawal and even if not, the estate administrator/trustee/beneficiaries may take this course before one gets to implement annuity program. Immediate withdrawal, although enjoying 50% waiver, may be subjected to higher taxes as a lumpsum.

I would not worry about it. If you survive till your 60's in order to cash out your SRS, the big likelihood is that you will live at least another 20 years statistically speaking.

another scenario where may be worthwhile to withdraw is when you have zero income (retrenched or go study).

pay 5% penalty. and withdraw 20-30k (roughly) for no income tax. makes sense if your former tax bracket is >10%.

[bwessel]

Forgive me as I am very new to investing. Just a teacher looking for some options upon my relocation to Singapore. My question on this post is this. Maybe I am reading it wrong. Isn't the only portion of the money that is taxable in the end the initial contribution? I thought all gains from this 20 years of investing was tax-free. Would that not change the calculations? Just trying to sort the numbers.

The figures below are showing 50% of the total investment (including gains) taxed. Would it not be 50% of only the initial contribution that is taxed? 100% of all gains untaxed?

Thanks
Beth

According to the official document from Ministry of finance, all the money(gain+contributions) in the SRS account will be subjected to tax.
http://app.mof.gov.sg/data/cmsresource/s...8Feb11.doc


Withdrawals from SRS accounts are subject to tax in the Year of Assessment following the year of withdrawal.

For example, if you withdraw $6,000 from your SRS account in 2009, either 50% or 100% of the withdrawal amount, depending on the type of withdrawal (see below), will be regarded as part of your income in 2009 and subject to tax for Year of Assessment 2010.

50% of the sum withdrawn will taxed for the following types of withdrawal:

a. withdrawal on or after the statutory retirement age prevailing at the time of your first contribution (prescribed retirement age);

b. withdrawal on medical grounds;

c. withdrawal on death; and

d. withdrawal by a foreigner who has maintained his SRS account for at least 10 years from the date of his first contribution.

100% of the sum withdrawn will be deemed as your income and taxed in all other situations.

If you are a non-Singaporean who no longer works and lives in Singapore, you will be taxed as a non-resident when you withdraw the fund from your SRS account.

You are so kind to respond right away and thank you for that link and the info. I would like to clarify one thing you said above and also ask a few additional questions if you are keen to help or if anyone else knows.

1) As a foreigner I would be able to withdraw all my money from the SRS account and only be taxed on 50% of the contribution and gains as income as long as I leave it in there for just 10 years and still live there? Would the 5% penalty still apply?

2) If I did move away are future contributions allowed or must you be a resident to contribute? I am guessing from the fact you said 100% of the withdrawal is taxable for non-residents I can keep the account open.

3) Can I name a spouse or minor child as "beneficiary" in the event of death? In other words, to avoid probate and make funds available right away to family at death?

4) If a spouse lives in Singapore and their spouse dies, is their net from the spouse's SRS (already taxed at 50%) also taxable again to the living spouse as income?

5) Can a person set an account up for a spouse or child? If yes, Does it reduce the tax burden to the contributor and would it also be considered "income" to the recipient?

I think we will be looking at doing this SRS plan depending on the answers above. Seems like the deductions are so minimal in Singapore that we have to take advantage of everything we can! Thank you so much!

[joanna]

Hi bwessel,

It would be useful to know what you are trying to achieve in regards to have a SRS account. To set aside money for spouse and kids in Singapore? To save guard cash assets in Singapore against family members overseas? Etc

For Q1. So long as account is opened for 10 years after your first contribution, and you have been a non-Singaporean continuously for 10 years. You need not live in Singapore. The 5% will not apply.
http://www.iras.gov.sg/irasHome/page04.aspx?id=1170


Q2. You have to be earning income in Singapore to contribute, which included directors fee etc.
http://www.iras.gov.sg/irasHome/page04.aspx?id=1166

3. You will need a Will for them to be beneficiaries. For minors, we set up a trust for them.
As this is not a bank account, there is no survivalship clause. It will have to go tru administration or probate. Same link as above, the monies will be taxed at 50%.

4. Only taxed once. Then it forms the estate of the deceased. Not considered an income.

5. You cannot setup an account for spouse or child.
Click here for who is eligible for SRS.
http://www.iras.gov.sg/irasHome/page04.aspx?id=1166


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[bwessel]

Hi bwessel,

It would be useful to know what you are trying to achieve in regards to have a SRS account. To set aside money for spouse and kids in Singapore? To save guard cash assets in Singapore against family members overseas? Etc

For Q1. So long as account is opened for 10 years after your first contribution, and you have been a non-Singaporean continuously for 10 years. You need not live in Singapore. The 5% will not apply.
http://www.iras.gov.sg/irasHome/page04.aspx?id=1170


Q2. You have to be earning income in Singapore to contribute, which included directors fee etc.
http://www.iras.gov.sg/irasHome/page04.aspx?id=1166

3. You will need a Will for them to be beneficiaries. For minors, we set up a trust for them.
As this is not a bank account, there is no survivalship clause. It will have to go tru administration or probate. Same link as above, the monies will be taxed at 50%.

4. Only taxed once. Then it forms the estate of the deceased. Not considered an income.

5. You cannot setup an account for spouse or child.
Click here for who is eligible for SRS.
http://www.iras.gov.sg/irasHome/page04.aspx?id=1166


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Hi there,

Thank you so much for your replies. Much appreciated.

As far as our goals as a family? We are just two people in our mid 30's moving to Singapore in August to start a new life. Husband got a promotion and I am finishing a Master's and plan to also get to work. We have not done as much as we could for retirement and now seems like a good time with the move.

I was reviewing the tax code there when I came across this SRS and potential deduction on taxes. My husband's income is decent but we benefit from the low tax rate vs home. What really adds to the income however is a large value of "benefits in kind" that push a good portion into a higher tax bracket. This means the amount we are paid from the "cash salary" is paying tax on a much larger "taxable income." This moves the percentage paid out of our "cash in hand" up up up and into the 15%. As a result, I am looking for a way to save on what we would give the tax man by saving it instead with more retirement planning. I figure even if we had to pull it out early and pay tax later we would benefit from the left over value of the gains and be in a lower tax bracket now. Better than just paying taxes first at 15% and then investing right especially considering annual returns and fees, etc? We don't have loads to invest. Maybe I am wrong in my thinking?

It looks like you handle this type of thing and I am new on the forum. Are we allowed to exchange information or is that not allowed? We would be seeking financial planning and advice when we arrive in August and would be interested to learn about your services

[joanna]

Drop me a pm. We can link up from there [emoji4]


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[Caelitus]

I have contributed to the maximum of the SRS contribution limit for 2014 (secure tax benefits first). This is to build up the war chest for any market weakness ahead (wait for opportunity). This is also to enforce setting aside the money so that I will not dip into those funds for other purposes (meet budgeting).

[phantom]

IMHO, for PMETs earning about 100-150kpa, exhaust the following options first before considering SRS as a tax saving tool:

1. CPF MA-VC (whenever below min sum)
2. CPF SA-VC of 7k to your own CPF SA

You achieve the same tax saving but:

1. No 50% tax upon death or use of CPF-MA for hospital bills, insurance etc
2. It helps to achieve your CPF-SA min sum without pledging your property at age of 55
3. If you want to use CPF-OA to fund 2nd property, (2) comes in handy

Agree with d.o.g that if income below 100k or more than 150k don't even bother

[bwessel]

IMHO, for PMETs earning about 100-150kpa, exhaust the following options first before considering SRS as a tax saving tool:

1. CPF MA-VC (whenever below min sum)
2. CPF SA-VC of 7k to your own CPF SA

You achieve the same tax saving but:

1. No 50% tax upon death or use of CPF-MA for hospital bills, insurance etc
2. It helps to achieve your CPF-SA min sum without pledging your property at age of 55
3. If you want to use CPF-OA to fund 2nd property, (2) comes in handy

Agree with d.o.g that if income below 100k or more than 150k don't even bother

Hi there,

Husband falls in that range of above 100k but under 150k annual (adding in the taxable benefits in kind). I am not yet working but hope to be once settled and I will want some type of plan of my own at that point.

Are you saying there are other options than the SRS for people like us? Husband is not "self employed" but is a professional. I thought these above options may not be able to apply? Perhaps I am wrong. This is what I found when I googled those titles: http://www.iras.gov.sg/irashome/page04.aspx?id=1260

Right now I am of the impression the SRS was the only way for us to invest with pre-tax dollars since we are foreigners. Are there other options out there? Just hoping to remove as much of the 15% taxable income as possible and save at the same time.