Explain how cash top-ups under the Retirement Sum Topping-Up Scheme work and what you give up by making one.
Before you put any cash into CPF, write down the year you could next spend it. For most people that is the year they reach payout age, and even then most of the money comes back only as monthly payouts. Be sure of that date before you think about tax relief or anything else.
Kelvin is an office worker. Every November his office chat fills with reminders to top up CPF before 31 December for the tax relief. Last year he nearly put in S$5,000, then stopped because he couldn't answer one question: when could he use that S$5,000 again?
The Retirement Sum Topping-Up Scheme lets you put cash into CPF retirement savings, either your own or a family member's. Where the money goes depends on age. Before 55, a top-up to yourself goes into your Special Account (SA). From 55, it goes into your Retirement Account (RA). The money earns the interest rate of whichever account it lands in, and from payout age it helps fund CPF LIFE.
The family members you can top up are your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings. Their top-up goes into their SA or RA depending on their age. If a parent already receives CPF LIFE payouts, a top-up raises their future payouts. For a parent not yet receiving payouts, it adds to their retirement savings the same way it would for you.
Each account can only be topped up to a ceiling linked to the retirement sums. The CPF Board publishes the current top-up limits, and when you start a top-up online you can see how much room you or the recipient has left.
Instead of cash, you can transfer from your own CPF savings to a family member's. This moves money from your retirement to theirs, and it does not earn tax relief.
Retirement top-up money cannot be used until retirement, and for most of it only as monthly payouts. It cannot come back out for a home, a business, a wedding or an emergency. This is not a reason to avoid top-ups. It is the first thing to be sure of before you make one.
For a self top-up, use only cash you are confident you won't need before retirement. For a parent, the money becomes the parent's. It funds their payouts, and if they die, what is left goes to their nominees and does not come back to you.
A top-up also comes late in the order of priorities. If your emergency fund is thin or your home downpayment isn't ready, fund those first. Lesson 5.3, "How CPF turns into retirement income", in The Singapore personal finance system, end to end, makes the same point.
Cash top-ups may earn income tax relief, up to yearly limits. There is one yearly limit for topping up yourself and a separate one for topping up family members. Family top-ups only qualify for relief when the family member meets conditions set by IRAS. The total of all your personal reliefs is also capped. Actual tax rates and relief limits are on the IRAS website.
Relief is given against the income of the year you made the top-up, and you claim it in the following year's tax assessment. The top-up must be made by 31 December to count for that year.
The tax relief value is your marginal tax rate times the amount you top up. Say Kelvin's top tax rate is 7%, a made-up figure. A S$5,000 top-up would save him about S$350 in tax, and it would still lock away S$5,000 for decades. Treat the relief as a bonus on a decision that already makes sense without it. Module 3 of Tax & Reliefs: how your income tax works and the reliefs you can claim, "Use CPF top-ups and stay under the relief cap", covers the tax side in detail.
Under the Matched Retirement Savings Scheme, the government matches cash top-ups to the RA of some older members with lower retirement savings, up to a yearly cap. With matching, a top-up to an eligible parent can be worth more than the cash you put in. Eligibility is set by age, savings and other criteria, and it has changed recently, so check the current rules for that family member on the CPF Board website before you assume a match.
This year Kelvin wrote down everyone he could top up and went through them one at a time.
Himself: his emergency fund is in place, but his flat renovation and his wedding need cash over the next eighteen months, so a self top-up can wait. His mother, 62: her savings are modest, and a top-up would raise her monthly payouts for life. He added checking whether she is eligible for matching to his list of things to look up. His father: he has passed away, so this does not apply. Mei's parents: a conversation to have with Mei before anything else.
He ended with one candidate this year, his mother, and a smaller amount than the office chat suggested, because the renovation came first.
Before he pays anything in, the remaining checks are the same ones you would make. He looks at how much top-up room his mother has left when he starts the top-up online. He checks the IRAS conditions for family relief and the CPF Board rules for matching. He looks up the relief limits and the overall personal relief cap on the IRAS website, then works out his relief as his marginal rate times the amount. If he wants the relief for this year, the cash goes in by 31 December.
Now make your own list. Write down the people you could top up, including yourself. For each one, write whether the money you would use might be needed before retirement, and by whom.
List everyone you could top up, yourself included. Next to each name, write whether that money would otherwise be needed before retirement.
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