Decide whether a voluntary MediSave contribution suits you.
Anyone with a CPF account can put cash into MediSave on top of compulsory contributions. It is worth doing if you have room below your Basic Healthcare Sum, your buffer and near-term goals are already funded, and the income tax relief is worth something to you.
Mei works as a freelance designer for part of the year and as an employee for the rest. Their accountant suggests putting some cash into MediSave before year end. Because of the freelance years, Mei's MediSave is lower than Kelvin's. Their emergency fund is in place, and they pay tax at a rate where the relief is worth having. Mei fits the group a voluntary contribution suits.
A voluntary contribution goes directly into MediSave and earns the MediSave interest rate. It can only be used for approved healthcare costs: hospital bills, approved outpatient treatment, and premiums MediSave is permitted to pay, which module 5 covers. Kelvin asks why anyone would lock money into an account that only pays hospital bills. It's a fair question, and the reasons and costs below answer it.
Contributions are capped at your room, which is the current Basic Healthcare Sum (BHS) minus your MediSave balance. If your balance is already at the BHS, there is no room to contribute. Lesson 1.3, "MediSave and the Basic Healthcare Sum: where the overflow goes", explains why.
Say the current BHS were S$70,000, an example figure, like the balances that follow. Kelvin has S$25,000 in MediSave, so S$70,000 minus S$25,000 gives them S$45,000 of room, and a voluntary contribution is worth considering. Linda has S$68,000, so their room is S$2,000 (S$70,000 minus S$68,000). For Linda a voluntary contribution is almost moot.
Voluntary contributions also count towards the CPF Annual Limit, which caps compulsory and voluntary contributions together within a calendar year. When you log in, the CPF Board shows your remaining room under both the BHS and the CPF Annual Limit.
Tax relief is the main reason for most people. Voluntary MediSave contributions can qualify for income tax relief within limits set by IRAS, and accountants suggest them to self-employed clients in particular for this reason. How the relief interacts with top-up relief and the yearly cap on total reliefs is covered in the course "Tax & Reliefs: how your income tax works and the reliefs you can claim", lesson 3.2, "Voluntary MediSave contributions and relief". Check the current rules there and on the IRAS website before relying on the relief.
The second reason is interest. MediSave earns the same higher rate as the SA, so money there grows faster than in the OA or most bank accounts.
The third reason, and the least obvious, is overflow. Once MediSave reaches the BHS, the MediSave share of future compulsory contributions overflows to the SA, or later to the RA. Filling MediSave sooner brings that overflow forward: compulsory money that would have gone to MediSave goes to the SA instead, so part of a voluntary contribution effectively acts as retirement savings. The BHS rises over time, so the effect is partial, but it is real.
The first cost is access. The money can only be used for approved healthcare and can't be withdrawn for anything else, and the withdrawal limits from lesson 5.1, "What MediSave pays for, and the withdrawal limits", still apply to each bill. If you might need the cash for a buffer, a home or another goal, MediSave is the wrong place for it.
The second cost is whether you need to do it at all. If you are young, employed and well below the BHS, compulsory contributions will keep filling MediSave anyway. A voluntary contribution adds more than the minimum but doesn't change what MediSave can do for you in an emergency. Self-employed people are in a different position. They must contribute to MediSave from their trade income, and voluntary contributions on top can be the main way their MediSave keeps pace with what they will need later.
A voluntary contribution suits you if you have room below the BHS, your buffer and near-term goals are funded, and you have a reason to want the tax relief. It also suits people whose MediSave is low relative to what they expect it to pay, for example because they are self-employed or have had long career breaks. It suits you less if you are already close to the BHS, your cash is needed elsewhere in the next few years, or your reliefs are near the yearly cap on total reliefs, so the relief would save little.
Kelvin has a flat purchase coming and plenty of room below the BHS that compulsory contributions alone will fill. They decide not to make a voluntary contribution this year.
To decide for yourself, find your current MediSave balance and the current BHS from cpf.gov.sg, and subtract your balance from the BHS to get your room. Log in to CPF to check your remaining room under the CPF Annual Limit as well. Check whether your buffer and near-term goals are already funded. Check your tax position, including whether your reliefs are near the yearly cap on total reliefs, and confirm the current relief rules in Tax & Reliefs lesson 3.2 and with IRAS. Then decide whether a voluntary contribution fits.
Work out your own room below the Basic Healthcare Sum, using your balance and the current BHS from cpf.gov.sg. Then look at your buffer, your goals for the next few years and your tax position, and write down whether a voluntary contribution fits.
Work out how much room you have below the Basic Healthcare Sum, then write whether a voluntary contribution fits your plans.
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