Does it ever not make sense to top up CPF just to reduce tax income payable?

Looking through the various answers and your reply, I see you are in a low tax bracket of 3.5%. Most of the answers are very relevant.

The issue is you wont get a lot of tax relief for the 6k contribution, and the key thing to think about is what do you want to do with 6k of cash?

• would you use it three / four years down the road to pay off study loans, or get married, or for property downpayment? if yes, then keep the cash and you don't have to worry about lack of cash then

• if no, where else will you be using 6k and are you better off? It could be covering basic insurance, emergency funds, or maybe investment.

I have a feeling I would have listed something that you may use the 6k for already, and would advise you to go with that.

Nonetheless I have an alternative formula to suggest. Take the incremental tax rate (which is 3.5%) and multiply against your annual income. That should be the upper limit to top up into cpf or srs. Because there could be better options to deploy the cash.

Personally, at 3.5% tax bracket, I would favour doing some safe / medium risk investments as 3.5% is rather easy to beat. For 7% tax bracket, I would do only cpf related reliefs because 7% tax savings + 4% interest > 10%, not a bad deal with no risk involved. At 11.5% or more, then doing a combination of srs and cpf related reliefs, up to the amount I would be comfortable parking away for a very long time.

Please bear with me if you are flooded with cash. Then what I say probably doesnt make sense. But if that's the case, you dont need advice from me. =)

Forget the tax savings for a bit and consider what you're going to do with the 6k.

If you're topping up your SA, you'll be directly saving to purchase CPF Life when you turn 65. Top up monies cannot be withdrawn before that. Yes you'll get a 4% annual return and buying a pretty good annuity plan but is this what you want?

If you're young, have a long investment horizon, and willing to take some risks, you can invest this money more aggressively.

And if you are going to, I might rather be inclined to use SRS instead if you still want the tax savings.

But if I don't want to be locked up, I'll just invest regularly, and forgo the tax savings for liquidity.