Did you know you could potentially save thousands in taxes while building your retirement nest egg? Singapore's progressive tax system is designed to be fair, but smart financial planning through tools like the Supplementary Retirement Scheme (SRS) can help you optimize your tax obligations legally and effectively.
While most of us focus on maximising our income, fewer take full advantage of available tax relief options. One powerful yet under utilised strategy is contributing to SRS, which serves the dual purpose of reducing your current tax burden while securing your financial future.
Curious about how much you could save? Our interactive calculator* below helps you discover your potential tax savings through SRS contributions. Simply enter your annual income and intended SRS contribution to see how it impacts your tax bill.
This tax saving can be significant, especially if you're already planning to set aside money for retirement. However, it's important to understand that SRS is a long-term commitment, as withdrawals before the statutory retirement age may incur penalties. Let's dive deeper into what SRS is and how it works.
Make the Most of the Supplementary Retirement Scheme (SRS)
The Supplementary Retirement Scheme (SRS) is a voluntary savings plan introduced by the Singapore government to help you save for retirement while enjoying tax perks. It’s a long-term savings tool that lets you set aside a portion of your income for the future, with some neat tax benefits.
Key Features of SRS
Voluntary Contributions
You have the freedom to decide how much to contribute each year. There’s a maxmum limit, which can change, but this flexibility lets you adjust your savings based on your financial situation.
Tax Deductions
One of the biggest perks of SRS is the tax relief. The money you put into your SRS account can be deducted from your taxable income, which means you pay less tax upfront.
Tax on Withdrawals
When you take money out of your SRS during retirement, only half of it is taxed. The other half remains tax-free, which is great if your income is lower when you retire.
Investment Opportunities
Your SRS funds aren’t just sitting there. You can invest them in various financial products like stocks, bonds, unit trusts, and fixed deposits. This gives your savings the chance to grow over time.
Age for Withdrawals:
You can start withdrawing from your SRS when you reach the retirement age (currently 63). You have the flexibility to plan when and how much to withdraw, but remember you need to take out all your SRS money within 10 years after you start.
Contribution Cap
Singaporeans: Up to $15,300 annually
Foreigners: Up to $35,700 annually
How SRS Works in Practice
Contributions
Let’s say you contribute $15300* to your SRS account in a year.
Tax Deduction
That $15,300 reduces your taxable income for the year, lowering your overall tax bill.
Investment Growth
You can invest that $15,300 in chosen SRS products, potentially growing your retirement savings over the years.
Withdrawals
When you reach 63 and decide to withdraw, if your SRS has grown to $400,000*, only 50% of what you take out is taxed. For example, if you withdraw $40,000 each year, only $20,000 is considered taxable income.
Source: IRAS
Accurate as of 27th Dec 2024
*For Singaporeans/PRs only whose SRS contributions are capped annually at $15,300.
This is an article by InvestAble.
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