Guide on CPF Life | Top Up Scheme CPF Life Singapore

Insurance | Singapore
by Priyadarshini 14 March 2023

Some Singaporeans are strongly want to get back their CPF funds. While others are equally zealous about putting more money into their CPF in order to gain those enticing interest rates. If you’re still unsure whether topping up your CPF is a wise idea, then read below. We tell you the benefits and drawbacks of doing so. Increasing your CPF contribution qualifies you to tax breaks, preventing part of your hard-earned money from going into the government’s coffers. In this blog, we give you a guide on CPF Life. 

Why do CPF Top-Ups Occur?

Technically, you can make voluntary contributions to all of your CPF Accounts. For example, your Ordinary Account (OA), Special Account (SA), Medisave Account, or Retirement Account (RA) if you’re 55 or older. However, you can only claim tax relief for topping up your SA/RA or MediSave Account, so that’s what we’ll concentrate on here.

Guide on CPF Life

There are three primary reasons to fund your CPF accounts:

Retirement payouts 

Having more money in your SA or RA increases your CPF LIFE retirement payouts when you reach the retirement age. Because the funds in these accounts cannot be used for housing, they will accumulate interest until you are eligible to withdraw them.

Interest Rates

CPF provides nearly risk-free interest rates on all CPF savings.  However, the SA and MediSave receive greater rates than the OA. The current interest rate for RA, SA, and MediSave is 4%, plus an additional 1% on the first $60,000.  And an additional 1% on the second tranche of $30,000 for over 55s of combined balances across all your CPF accounts.

Tax Benefits

You can lower your taxable personal income by contributing to your own SA or RA, as well as the SA or RAs of family members. As well as your own MediSave account.

What are the Disadvantages?

Once you send funds to your SA, RA, or MediSave account, they are locked in until you make a withdrawal or claim. You cannot transfer the funds into your OA (even if they were transferred from your OA), nor can you utilize them for housing.

How much tax relief is available for CPF Top-Ups?

Tax reduction is available for voluntary contributions to your SA/RA and MediSave Account.

Relief from CPF Cash Top-up (SA / RA)

You can claim up to $7,000 in tax reduction for making voluntary CPF contributions to your own SA / RA. You can additionally claim up to $7,000 in contributions made to the SA or RA by the following sorts of family members:

  • Parents and/or In-Laws
  • Grandparents or grandchildren’s grandparents
  • Spouse \sSiblings

However, in the year preceding the top-up, spouses or siblings must not have had an annual income of more than $4,000. This is including non-taxable income such as bank interest, dividends, and income from overseas. Otherwise, you will not be eligible for tax relief. Your taxable income will be reduced as a result of the tax relief. So, if your taxable income is $50,000 and you contribute $7,000 to your SA and $7,000 to a parent’s RA, you will only have to pay taxes on $36,000 ($50,000 – $7,000 – $7,000).

Contributions to Medisave made Voluntarily Tax Reduction

You can get tax breaks if you make voluntary MediSave donations. The greatest amount of tax relief you can receive is based on the lowest of the three criteria:

  • The amount of money you voluntarily transferred to your MediSave Account.
  • Your annual CPF contribution cap for the year, less any Mandatory Contributions transferred by your employer or yourself as a self-employed individual.
  • Before making your voluntary payments, deduct the Basic Healthcare Sum ($63,000 in 2021) from your Medisave Account balance.

Top-Up Limit for CPF?

The total amount of tax relief you can claim each year is capped at $80,000. But you can top up your CPF above and beyond that amount. However, the CPF Board imposes some top-up limits, in addition to the tax relief limits. The CPF Annual Limit is a limit on the amount of money that you can deposit into your CPF accounts each year. It covers all contributions made in a calendar year, whether mandatory or optional, to all CPF accounts.

In 2021, the CPF Annual Limit is $37,740. So, if your CPF contributions from work (employer and employee) total $25,000 in a year, you can only top up $12,740 before your contributions are taxed. This guide on CPF Life will help you make the right financial choice. 

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