Introduction

Every year, I update and re-release a guide on how to save on personal income tax. This started some years ago, when I tried to figure out how I could reduce my tax liabilities and found, to my frustration, that the information was scattered all over the place.

I set out in this guide 6 specific steps that you can take, including calculations as to the amount of tax you can potentially save. Each of these steps stack with one another, for more tax savings.

All calculations in this guide are on the assumptions that:

(a) you are Singaporean / PR - if you are not, your contributions limits for some of these schemes may differ, and some of these schemes may not be open to you; and

(b) you earn $160,000 per year¹ - if you earn more, following this guide will save you even more tax.

The steps

I. Open a Supplementary Retirement Scheme (SRS) account and transfer in $15,300.²

Tax saved: $2,295 (15% of $15,300).³

Downside: the money is stuck in your SRS account.

But don't just let it sit there. Invest it in something long-term. Why? Because you can start to withdraw it penalty-free from the age of 63 (the present retirement age). You pay taxes on 50% of the amount you withdraw, but if you are retired with no chargeable income, you pay less or no taxes on the withdrawn amount.⁴

I cannot emphasis enough the importance of actually investing the funds in your SRS account. The interest rates for SRS accounts are negligible (0.05% per annum). But the idea is to channel the money your SRS account into long-term investments⁵ that you do not intend to cash out until retirement. Even if the investment returns are only middling, remember that you are saving 15% in taxes.

That being said, SRS contributions may not be for everyone, especially for those who do not pay significant amounts of personal income tax. Jun Yuan Yong of The Business Times explains in an article from February 2024 [https://www.businesstimes.com.sg/opinion-features/srs-contributions-are-great-tax-savings-may-not-be-everyone]. His article also includes suggestions on what SRS funds can be invested in.

Finally, some of you may not be convinced of the benefits of SRS contributions. That's perfectly fine. But even if you fall into this category, can I implore you to open an SRS account anyway, then transfer $1 in. That's because the earliest date from which you can start to make penalty-free withdrawals is pegged to the retirement age at the time when you make your first SRS contribution (and not when you first open an SRS account). What this means is if you had made / make your first SRS contribution:

(a) before 1 July 2022, then you would be able to start making penalty-free withdrawals from the age of 62 (the retirement age at that time, before it was increased to 63 on 1 July 2022);⁶

(b) between 1 July 2022 and 30 June 2026, then you would be able to start making penalty-free withdrawals from the age of 63 (the current retirement age);

(c) between 1 July 2026 and around 2030, then you would be able to start making penalty-free withdrawals from the age of 64 (the retirement age from 1 July 2026 onwards); or

(d) around 2030,⁷ then you would be able to start making penalty-free withdrawals from the age of 65 (the retirement age from 2030 onwards).

Now, I don't know about you, but I change my mind all the time.⁸ You may not see the point of SRS contributions now. You may never see the point. But on the off-chance that one day, you do decide to start making SRS contributions, wouldn't you appreciate having the option to starting penalty-free withdrawals at the age of 63 - as opposed to 64, 65, or even older - and potentially bring forward the start of your (semi-)retirement? And you unlock this option for the low, low, price of $1.⁹ If you ask me, making a $1 SRS contribution now is a no-brainer.

Stay tuned - part 2 coming up next.