I'm in my mid-20, and didn't declare that I am freelancing. My strategy is to contribute up to the $20k limit of CPF OA to get the 3.5% ASAP by putting in a lot monthly, and empty it for housing. Any advice?

Question

My income averages between 5-7k mthly. I contribute CPF up to 40% of my income, 25% in STIETF, the rest in CIMB.

Gabriel Tham · Accepted Answer

if you did not declare to IRAS and still contribute to CPF voluntarily, then IRAS will be knocking on your door to ask where you get the money from?

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Unless you have a very good explaination....I suggest you better declare to avoid running into trouble with the law.

Kok Koon · Answer

Heyo QP!

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Fellow self-employed here:

Leaving you a video comment as typing it out will take way too much time:

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Video link:

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= https://cl.ly/8be3f3c7785e

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IRAS Calculator: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=2ahUKEwj_ys3cpOTdAhWLrI8KHZbRCGcQFjABegQIBxAC&url=https%3A%2F%2Fwww.iras.gov.sg%2Firashome%2FuploadedFiles%2FIRASHome%2FIndividuals%2FTax%2520Calculator%2520-%2520Residents_YA17.xls&usg=AOvVaw36RaJQAX74G-15QyTe7KJt

Joash Chua · Answer

Ok there is some misconception that needs to be addressed.

Firstly, your CPFOA will NOT compound annually at 3.5%. It will compound at 2.5%. The additional 1% is a flat simple interest of 20,000 (200) which will be credited to your CPFSA (4% p.a.).

As a self-employed person, you can limit your CPF contribution at 37%. Since your income hovers between 5-7K, I am assuming the average is 6K, which is the CPF wage ceiling. Your CPF contributions are also tax deductable, so your chargeable income on your tax returns should be about 40,000 after all other deductions. That would put u in the 2nd lowest tax bracket and the income tax is about 550 annually.

Secondly, its good you are setting aside money for investments, but it looks like you are invested exclusively in Singapore equities. This is way too much concentration risk in your portfolio. You need to have a more geographically diversified portfolio. STI has been hammered and is currently -10% YTD, compared to S&P 500 +2-3% YTD.

Finally, I hope you have an emergency fund. Salaried workers should have at least 3-6 months of living expenses set aside, while freelancers should have at least 6-12 months of living expenses in emergency funds. This is simply because freelancers have no guaranteed and steady cash flow compared to salary workers.

Chin Guo Qiang · Answer

Don't rush to get to $20k OA just for the 3.5% pa interest in CPF account. It can be $5,000 or $10,000, but the 3.5% pa interest do not add up to be a significant sum, for balances less than let's say, $50,000 (I did the math myself and saw the trend).

Just contribute if you see it fit for a good 3.5% interest rate, if not keep the earnings as liquid for opportunities to come by. :)