Asked by Anonymous
Asked on 12 Nov 2018
We are 25 years old and have just started working a year ago. Our CPF OA is sufficient to pay for a staggered downpayment of the first 5% for a 4-room BTO flat.
Let me share with you what I have done. I will top up medisave account (MA) with cash for tax relief followed by RSTU up to $7k (tax relief) then transfer OA to SA. With the remaining cash in hand, I will use it for the downpayment of BTO. This way, I can fund my retirement yet at the same time enjoy tax relief and lastly, using cash to pay for the first 5% will be better than using CPF OA because I will enjoy at least 4% interests from when I transfer OA to SA.
What is your game plan?
If your game plan is just to buy BTO and stay until retirement, loan max and tenure max to get the benefit of Time valure of Money.
No, you shouldnt do that. You will not be getting any tax relief by doing so. For retirement, u can top up your special account directly (Retirement sum topping up scheme). This way, u will receive tax relief for the topped up amount. Eg, your taxable income is $40k, for every dollar u earn above 40k is taxed at 7%. Therefore, if u topped up $1000 into your special account, u get $1000 tax relief, u saved 7% of $1000 = $70 tax money. Effectively have gotten 7% return on your money, in additional u will earn 4%-5% interest yearly guaranteed.
If u want to pay for house loan, u can just use the cash to paydown the loan directly. HDB loan interest is 2.6%, but u will be able to earn at least 4% in SA. So the money could be better to topup your special account this way. Take note Tax relief caps at $7k per year though.
If you are taking HDB loan, there is another one area for 'savings' which is the HPS. Add me on facebook if u are interested to learn about it.