IV. Make a voluntary CPF top-up.¹⁹

This is tricky and will depend on whether you are an employee or self-employed.

If you're an employee, the maximum of $37,740 is already going into your CPF account every year, since your income of $160,000 exceeds the CPF annual salary ceiling.²⁰ So don't bother with the rest of this section.

If you're self-employed (e.g. business owners, sole proprietors, law firm partners / consultants, real estate agents, financial advisors), you have compulsory MediSave contributions of $6,588 (if your age is between 35 and 44, inclusive). So you can theoretically top up a further $31,152 ($37,740 less $6,588). But don't get too excited yet. You would not save $4,689 in taxes, because with the deductions of $15,300 + $8,000 + $8,000 = $31,300 at Sections I - III above, if you top up so much, you're going to get bumped down into the preceding tax bracket of 11.5%.

Further, if you think you are going to need liquid funds in the near future, you may want to limit your voluntary CPF top-up amount. Once the funds are transferred to your CPF account, they're locked up (but see Section II above for a discussion on what this really means).

However, voluntary CPF top-ups are still worth considering as a tax saving tool if:

(a) you agree with the point I made at Section II above - that CPF contributions are not wasted;

(b) you are fortunate enough to be earning, say, $231,300 or more per year. If you think that you should be saving at least 20% of your income, then the maximum of $37,740 which you can voluntarily contribute to your CPF accounts comes up to 16.31% - well under 20% - and making this maximum voluntary CPF contribution will save you $6,793.20 or more in taxes (18% of $37,740);²¹ and/or

Recommended by LinkedIn

• Indian Budget 2024 Highlights: Key Updates and Tax…CA Neetu Jain

• India Announces Simplified Tax Regime & ReformsECOVIS International

• Finance Act 2020: Lack of initiatives &…Dr. Ikramul Haq

(c) you are able and intend to use part of your CPF contributions towards a property purchase. The portion of your CPF contribution that goes into your Ordinary Account can be used towards your down payment, monthly mortgage, or both. For folks aged 36 - 45 who contribute the maximum of $37,740 to their CPF accounts, CPF will automatically allocate $21,425 into your OA,²² some or all which can then be (immediately) withdrawn to pay for property. Assuming you are able to withdraw the entirety of your OA towards your property purchase,²³ only $16,315 (out of the CPF contribution of $37,740) ends up being locked up in your OA and MediSave Account.

Finally, as to timing, doing voluntary CPF top-ups at the beginning of the year allows you to maximise your interest returns (calculated based on the CPF interest rate). If you have yet to make any CPF contributions this year, consider making a contribution by December 2024 (for tax deductions for YA 2024) and in January 2025 (for tax deductions for YA 2025). Some people spend their year-end bonuses on timepieces or art. I personally try to keep a chunk to do a big top-up in January. To paraphrase one of my friends, financial prudence is very sexy.