Money FM 89.3 Show
Asked by Anonymous
Asked on 11 Sep 2019
Also, when is the best time to make this voluntary cash top-up, and why?
Top Contributor (Jan)
Hariz has given an excellent answer, but just to add on here:
The best time to contribute is at the start of the year. CPF interest is calculated monthly, but credited and compounded annually in December. So $7K contributed in early Jan earns $280 more compared to $7K contributed at the end of Dec. I experimented with this myself and although I can't get the exact figure, contributing earlier seems to result in a little more interest.
The faster you hit FRS, the faster you can let compound interest take care of the increase in FRS sum that occurs every year.
The tax savings from the contribution can be quite decent. More tax savings = more money for investing. Over time, this builds up.
Top Contributor (Jan)
Alright, there are a few ways to do top-ups to your accounts.
Firstly would be the Retirement Sum Top Up Scheme (RSTU), which allows you to top up your Special Account up to the prevailing Full Retirement Sum of the year. This is 176k this year. That means if you're below 55 and have 100k in your SA, you can top up a 76k lumpsum. Or just $1, that's fine too.
Secondly, would be through Voluntary Contributions. Here you have the VC3A (contributing to OA, SA, and MA) and VCMA (Medisave only).
The VC3A has a limit of $37740 per year but do check the exact amount you can contribute via logging in to your own CPF statements.
And this amount would be split based on the allocation age you're in. This is the same allocation rate as your Mandatory contributions (the 20% you pay and the 17% your employers pay).
The VCMA only tops up your Medisave account and you also get tax relief from this top-up.
This is good, especially the VC3A method because it's one of the only ways you can increase your Special Account above the prevailing FRS, the other being a mandatory contribution from work.
I'm not 100% sure on the best time, because CPF does have a slightly weird way of calculating interests owed. But if I'm not wrong the earlier the better.