What advantages do I have if I open an SRS account?

Hi anon,

I would recommend that you open an SRS account first to lock in the withdrawal age to this year's prevailing retirement age, which is 62. You can just put a dollar in first when opening.

Beyond that, you are unlikely to require the tax benefits of an SRS account at this point in time. SRS is usually useful when you are in the 7% tax bracket and above. However, in time as your salary grows, SRS may be of use to you.

Eventually, should you utilize your SRS account, you just need to note the key points, namely, no early withdrawal from SRS until retirement age, 10 years to withdraw the funds/monies inside, and only 50% of the withdrawal is considered income for that year. You are probably at a point where SRS will not be required, but there is no harm in preparing for the day when you need it. There is probably a place in any one's retirement planning for SRS, but that also largely depends on a person's earnings.

The only advantage to open an SRS account now is to lock in the 62 age withdrawal.

The other advantage of SRS is to lower your taxes. Assuming 2.8k X 14 months (with bonus), your tax bracket is at 40k. That's not a lot. paying 3.5% of tax on the 10k (above 30k) is ok lah... unless you really want to reduce more tax and do not require the cash.

Also with regards to the penalty, there is a 5% penalty for the withdrawal, which makes no sense to contribute to save tax (on top of being taxable income for the year you withdraw) as an emergency fund. Better to keep it as cash for an emergency.

The only time it starts to make sense is when your tax is 11.5% (above 80k annual income) because that's when the penalty is 5% only, and your tax (if your annual income after withdrawal) is at 3.5%, which = 8.5%

savings 11.5% to pay 8.5% is wise IMHO.