3 Ways to Enhance Your CPF Savings

Hello there! Welcome to another edition of SG Retire Steady Newsletter, where I share my insights, experience, resources and knowledge so that you can achieve financial freedom in a sensible and reliable manner. Read on!

Being in the Singapore workforce, CPF is no stranger to us. CPF helps Singaporeans and Permanent Residents set aside funds to build a strong foundation for retirement. As an employee, your employer will contribute to your CPF account every month without you having to do anything. In addition, there are 3 things you can do on a personal basis to enhance your CPF Savings.

Voluntary Top-Up to Special Account

You are allowed to do a cash top-up to your Special Account if your SA balance is below the Full Retirement Sum for that year. For instance, this year’s FRS is $205,800. Hence, if your SA has a balance of $100k, you are allowed to top up another $105,800 using cash to leverage on the 4.08% p.a. interest that it is paying currently.

$105,800 growing at 4.08% p.a. will give you $132,308.66 of total interest over 20 years. In contrast, $105,800 growing at 1% p.a. (bank deposit rates are very much less than this) will give you $23,780.52 of total interest.

Tax relief will apply to the voluntary contribution that you make to SA. However, the tax relief is capped at $8k per year.

When should you do this top-up? While it is still very common for top-ups to be done during tax savings season at the end of the year, you might want to consider topping up at the start of the year. This allows you to receive CPF interest for the full year instead of your funds attracting bank deposit interest.

Voluntary Top-Up to Medisave Account

You can also do a cash top-up to your Medisave Account if your MS balance is below the Basic Healthcare Sum. For instance, this year’s BHS is $71,500. Hence, if you have $30k in your MS account, you are allowed to top up $41,500 using cash.

You will also get tax relief by contributing voluntarily to your Medisave Account. The tax relief cap of $8k is shared with the cap from the Special Account Top-Up. For instance, if you contribute $6k to SA and $5k to MS, your total tax relief is $8k.

In my opinion, topping up SA should come first before topping up Medisave. However, as mentioned earlier, topping up your SA is only allowed if your SA is below the year’s Full Retirement Sum.

If your SA is above the FRS, you can then consider topping up Medisave to get the tax relief.

Transferring OA Savings to the SA Account

This option does not get you tax relief but it is a method to have more of your CPF savings getting higher interest. Transferring $100k from OA to SA will get you an additional $58,646.38 interest over 20 years based on the current SA interest rates.

Do note that similar to a direct SA top-up, you can only transfer OA savings to SA if your SA is below the year’s FRS.

As the process is irreversible (you cannot transfer SA to OA), it is wise to ensure you do not need the OA funds for your mortgage repayment needs or future housing needs.

BONUS OPTION for those with SA balance above Full Retirement Sum and MS balance at Basic Healthcare Sum

If you find that you are no longer allowed to voluntary top-up to SA or MS, do not fret. There is still one solution for you to add cash into your CPF savings to leverage on the interest rates and to get tax relief at the same time.

This option is available at the start of the year when the Basic Healthcare Sum amount is refreshed. For instance, in 2023 the BHS is $68,500 and your MS balance will never exceed this throughout the year.

In January 2024, the BHS was revised to $71,500. That gives you the opportunity to top-up $3k into Medisave and get tax relief on it as well.

If you do not do this at the start of the year, your MS will slowly be filled up every month as you get CPF contributions from your employer.

Topping up voluntarily to MS before it gets filled up will then push the subsequent Medisave contributions into your OA account (since your SA account is also full).

That’s a wrap for this edition! Thanks for being here.

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Sim Jit-Vern
B.Eng (Hons), CFP, ChFC, CLU, CIAM, ADWM, ASEP, IBFA

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