Save on Income Tax with Supplementary Retirement Scheme!
Take avantage of Supplementary Retirement Scheme (SRS) and save on income tax like a lot of other middle aged Singaporeans. SRS was established to encourage individuals to save for their retirement by offering tax incentives. SRS is open to all Singaporeans, Singapore Permanent Residents and foreigners.
Benefits
Besides having a larger pool of savings upon retirement, members can also claim tax relief for contributions made to the SRS. Investments and gains in the SRS are tax free.
Tax will be payable only when SRS savings are withdrawn. Only 50% of the sum withdrawn will be subject to tax. Withdrawals may also be staggered over 10 years to enjoy greater tax savings.
Allocating to SRS
All SRS contributions are to be made in cash at any time each year to an individual SRS account. The amount of contribution is subject to a cap of $11,475 for Singaporeans and Permanent Residents.
How much tax will I save?
The example below illustrates the tax savings based on the SRS contribution cap of $11,475.
Example
A single Singaporean man who earns $350,000 a year (which is above $76,500). He can contribute up to a cap of $11,475.
| Scenario 1 | Scenario 2 | |
| Salary Bonus |
$180,000 $20,000 |
$180,000 $20,000 |
| Total earned income | $200,000 | $200,000 |
| Less Personal Reliefs | ||
| Earned income | ($1,000) | ($1,000) |
| CPF | ($8,000) | ($8,000) |
| Insurance | ($3,000) | ($3,000) |
| SRS Contribution | NIL | ($11,475) |
| Chargeable Income | $184,000 | $172,525 |
| Computation of tax (Illustrated using Year of Assessment 2008 Rates of Income Tax): | ||
| Tax on the first $160,000/$320,000 | $15,500 | $15,500 |
| Next $24,000@17%/$12,525@17% | $4,080 | $2,129 |
| Total Tax | $19,580 | $17,629 |
| Tax Savings | $1,951 | |
This is savings to your pocket; alternative will be IRAS receiving the money!
Making withdrawals from your SRS Account
Withdrawals can be made in any amounts, at any time. However, if the withdrawal is made before the statutory retirement age, now 62, 100% of the sum withdrawn will be subjected to the individual’s marginal tax rate. On top of that, a 5% penalty will be imposed.
On the other hand, only 50% of the withdrawals will be taxed if withdrawals are made under the following conditions:
- on or after the statutory retirement age prevailing at the time of first contribution
- medical grounds
- death
Withdrawals made upon retirement or on medical grounds can be spread over a maximum of 10 years for optimal tax management.
What type of investments can I invest my SRS funds in?
Funds in the SRS account may be invested in a range of financial products. This includes fixed deposits, insurance products and unit trusts. Investments in direct property are not allowed. As for life insurance products, only single premiums with life cover of not more than three times the single premium will be allowed. Critical illness, healthcare and long term care products are excluded from this scheme. All proceeds from the realisation of SRS investments must be returned to the SRS account.
How to get the best deal?
Before you start saving under the SRS scheme, it is advisable to do a simple cost-benefit analysis to review the potential tax benefits as well as earnings from investing your SRS funds. This should be weighed against the opportunity cost of tying down your funds till retirement age.
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