How to get $700 Tax Relief with the SRS Account
Business | 05 Dec 2019
In this article we will be sharing with you more about the SRS account and why you should care about it.
I’m sure everyone has heard about it, but what exactly is an SRS account? SRS stands for the Supplementary Retirement Scheme, this is a voluntary scheme to encourage people to save for retirement.
But hold on before we go on to tell you what you can do with the account, let’s break down the math so you don’t have to!
Let’s start with a monthly base pay of $3,350. That means you will be earning $40,000 annually.
As seen in this graphic you paid $550 in taxes.
Now let’s say you have a big bonus and a promotion. Good for you! And now your base pay is $4,200, and your annual income is $50,000. Let’s look at the graphic again to see how much you will be paying in taxes this year.
As seen above, you will be paying a whopping $1250, that’s $700 more than last year! However, if you open an SRS account with any of these 3 banks: DBS, OCBC, UOB. After you deposit $10,000, you have tax relief for that $10,000. Hence, will be back to paying $550 in taxes. That’s $700 in tax relief!
Now what’s the catch? Why would the Singapore government be so nice to give you so much tax relief?
Here are the two main catches:
1. It’s not for everyone
If you make less than $40,000 annually and are younger than 30, then this scheme is not the most appropriate for you. This is because the deposit amount is high for low tax relief amounts.
If you are younger than 30, you would have a significantly longer lock-in period. For example, if you are currently 26, you would have to hold your funds for 36 years. However, if you are currently 38 years old, you would only need to hold it for another 24 years.
Withdrawal can be done at any time for free! No lock-in! Yes and no.
Technically you can withdraw the amount before you turn 62, however, if you do, you have to pay a 5% penalty AND pay taxes on the amount withdrawn. Therefore, the amount set aside in the SRS is not meant to be used for short term purposes as it is a fund meant for your retirement.
When you open an SRS account, you can start investing in SRS-Approved Financial Products: Unit Trust, Stocks, ETF, REITS, Bonds, Fixed Deposits, Retirement Policies.
The maximum deposit amount is $15,300 annually. You can deposit any amount before 31 December this year it will be automatically registered by IRAS and eligible for tax relief this year.
Not only would you save money from tax relief you can also invest in high interest yielding investments with a longer time horizon to build up your retirement funds.
It get’s better!
The retirement age is currently set at 62 years old for the SRS Account and that will not change in the next 3 years if that retirement age is increased to 65. Under the terms of the SRS Account you will still be able to withdraw from the account at 62 as long as you had put in the deposit before any changes are announced regarding the retirement age.
What’s more? When you withdraw your funds at 62, half of the amount withdrawn will be tax-exempt. For example, when you withdraw $40,000 that year, you would only pay taxes for the next $20,000. As can be seen above, the first $20,000 is tax-exempt. So assuming you have no other income streams, you can withdraw $40,000 per year without paying a dollar in taxes.
So, the SRS account is the best for people above 30 that are making more that $40,000 annually. You can relax in your golden years with $40,000 per year from your SRS account and completely avoid thousands of dollars paid in taxes.
With the SRS account, it will be the best opportunity to take retirement planning seriously and enjoy tax-relief.