Wednesday, October 24, 2012

Enjoy tax benefits with SRS

Many Singaporeans use their savings to buy property as an insurance for retirement. Another attractive way to make sure you have something solid to fall on when you retire is investing in the Supplementary Retirement Scheme.

Introduced in 2001, the scheme takes care of contributors' needs beyond housing and basic medical needs.

You have to open an SRS account first with DBS or the other two local banks.

For more information about SRS, click here.

For investment options and further details, contact me here.

SRS contributions may be used to purchase various investment instruments such as listed shares, unit trusts, bonds, fixed deposits or insurance policies. It offers remarkably good tax benefits as investment returns are accumulated tax-free. Contributions to SRS are eligible for tax relief. Tax is deferred till the age of 62 and beyond and only 50 per cent of withdrawals are taxable on retirement.

Moreover, you are allowed to spread out your withdrawals over a period of time.

With lower or nominal income at retirement, you may end up paying little or no income tax. But there is a 5 per cent penalty imposed for early withdrawals.

There is no age ceiling for contributions to the SRS. You can contribute to the scheme up to any age, until the point where you make the first withdrawal, at the statutory retirement age or on medical grounds.

As it is essentially a tax deferral scheme and not a tax shelter for the asset rich, caps are set on the amounts of contributions per year. This is 15 per cent for locals annually and 35 per cent per year for foreigners in view of the fact that they do not enjoy tax relief on their CPF contributions.

Employers can contribute to their employees' SRS accounts, given the account-holders' current contribution limits - in absolute terms - of $12,750 per year for Singaporeans and PRs and $29,750 for foreigners for each employee. They can claim full tax deduction for their contributions. SRS members will be taxed on the contributions that their employers make to their SRS accounts. But they can enjoy a tax relief of up to the applicable contribution limit per YA for the SRS contributions which they or their employers make.

SRS is a voluntary scheme which gives you another good and sensible option to cope with inflation and do something about what would otherwise be an inactive pool of retirement money. It is a bonus to look forward to upon retirement.

And because it is, after all, a voluntary post-retirement benefit, it is not protected from creditors. Neither can it be used as legal collateral.

SRS also compensates for inflation as monies in the SRS account can be invested to gain potentially higher returns.

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