benefit: reduce chargeable income.
— SRS cash balance… can invest in gold, ETF@SGX, a few stocks@SGX … Alternatively, accrual 0.05% per year if not invested.
too much dry powder (like > 2k) .. idle cash earning “no” interest
too little dry powder (like < 2k) .. s27 may bounce to Poems account
Complications:
* SSB purchase .. amount is immediately deducted from SRS into an invisible earmark account
* SSB redeem .. sale proceeds comes in beginning of the month
* Once you contribute the max, you can’t top up more until next January, but you can redeem any SSB position.
==== tax rule and investment horizon
$15,300/Y max deposit into this account as tax exempt income. Tax saving of more than $2.7k/Y
After 5Y (say 2030) can withdraw as 2030 income, but my tax bracket in 2030 would be the lowest, because first 40k in 2030 is not taxed in Singapore.
Before 2030, During the 5Y lock-in, withdrawal penalty is 5%.
— my marginal tax rate 15% in YA2021, but 18 or 19% in YA2022 i.e. Mar 2022.
Every $1 of chargeable income beyond $120k attracts 18% marginal rate
— zero-coupon bond analogy (by Aaron Lee) as a summary
(Ignoring SRS investment yield) receive a 15% net savings upfront to sacrifice liquidity for X years.
— rules around age 62 i.e. official retirement age
* before 62, withdrawals will incur 5% early withdrawal penalty (no minimum). The 95+5% (the entire 100%) will be considered chargeable income of the withdrawal year
* after 62. No early-withdrawal penalty. 50% of the withdrawal amount goes into assessable income
I spoke to IRAS hotline with 0 minute wait and received the link to official IRAS explanation and FAQ (so much better than IRS system): https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Special-tax-schemes/Supplementary-Retirement-Scheme–SRS-/Tax-on-SRS-withdrawal/
— simple plan: Assuming I still have high salary in the U.S. but not in SG:
1) Lock up SGD10k in 2020 to save $1.5k as immediate cash “payout”. 2) When not working in SG, withdraw $10k (up to 20k/Y) and pay 5% penalty.
If no investment return then the 15%-5%=10% gain would be rather low to compensate for the loss of liquidity (like iPhone lock-up) over the intervening years? This simple plan is good for
- high-earners near 62, or
- in my last few years in SG. Why? Within a few years my SG income would drop very low, and the withdrawal would incur $0 IRAS tax. Therefore, I should withdraw and pay the 5% penalty as soon as I leave Singapore (subject to breakeven)
— slightly bigger plan
* before 62 I can withdraw around 20k/Y. I pay 5% early withdrawal penalty. The entire 20k goes into assessable income and hopefully incur no tax.
* after 62 I can withdrawal up to 40k/Y. Half of it will be assessable income to IRAS. 20k chargeable will incur 0 tax
CPF top-up is an alternative, but more severe liquidity constraint
==== investment choices to consider later.
- SIA engineering?
- SGX Reits
- eqMufu in Turkey, Russia, Thailand, China etc
- “You can, however, buy a SGX-listed ETF that tracks an index of the US stock market… Some do not offer you the option to invest your SRS funds. This includes Tiger Brokers, Moomoo “. FSM disallows SRS invested in USD stocks (including ETFs)
https://thefipharmacist.com/can-i-use-srs-to-buy-us-stocks-and-etfs/ has details on US stocks
Unit trusts dividend? I feel reinvestment is better, as performance is easier to track.– fees by DBS:
- For stocks/ETF .. only transaction fees. No periodic fees by FSM, CDP or DBS
- For unit trusts .. only transaction fees 0.82% for online purchase. No periodic fees.
- for gold?
Warning: DBS SRS snapshot has a display bug — it is unable to remove zero positions of tBill or SSB. I reported to DBS and they called back to understand my complaint.
— 6M tBill .. I invested $3k (debited 9 Jan). I feel OK about it.
No $2 fees. Higher return than SSB.
— SSB parking of SRS balance .. After full contribution near 31Dec, I can leave 5k behind and put most of the SRS balance into SSB.
Redemption has a flat $2 fee. Avoid redeeming within 3M; avoid leaving too much (like 5k) in SRS acct. $1000 * 2.8 ppa/12M = $2.xx/month
====
— SRS account’s two snapshot ..
1) cash snapshot shows liquid cash balance
2) monthly statement snapshot shows all securities.. Consolidated statement under my own name
Monthly statement also shows dividend payment for the past N years.
— record of my DIVA position
- total cost: $2193.00 .. “subscription” amount as shown on some not all statements
- upfront: 0.82% i.e $18
- net amount sent to DIVA: $2175
- bought price: $2.4216/unit on 2 Feb 2021 .. “NAV” price as shown on statement
- units bought: 898.17
— record of my stock position .. see also https://tanbinvest.dreamhosters.com/19508/sia-bought-by-srs/