You will be able to decide whether a voluntary MediSave contribution suits you.
Mei is a freelance designer for part of the year and an employee for the rest. Her accountant suggested she put some cash into MediSave before year end. Kelvin asked why anyone would choose to lock money into an account that only pays hospital bills. It is a fair question, and the answer depends on how full your MediSave already is and what you expect it to pay for.
Anyone with a CPF account can make a voluntary contribution to MediSave in cash. The money goes straight into MediSave, earns the MediSave interest rate, and can only be used for approved healthcare costs: hospital bills, approved outpatient treatment and the premiums that MediSave is allowed to pay, as module 5 explains.
You can only contribute up to the room left below your Basic Healthcare Sum. If your balance is at the BHS, there is no room, and lesson 1.3, MediSave and the Basic Healthcare Sum: where the overflow goes, showed why. Voluntary contributions also count towards the CPF Annual Limit, which caps compulsory and voluntary contributions together in a calendar year. The CPF Board shows your remaining room under both limits when you log in.
With example figures: if the current BHS were S$70,000, Kelvin's room would be S$70,000 minus his S$25,000 balance, which is S$45,000. Linda's balance is S$68,000, so her room would be S$2,000. A voluntary contribution makes sense to think about for Kelvin. For Linda, it is almost moot.
There are three reasons people make one.
Tax relief comes first for most. Voluntary MediSave contributions can qualify for income tax relief within limits set by IRAS, which is why accountants suggest them to self-employed clients in particular. How the relief interacts with top-up relief and the yearly cap on total reliefs is covered in 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 you count on it.
Interest is the second. MediSave earns the same higher rate as the SA, so money sitting there grows faster than it would in the OA or most bank accounts.
The third is the least obvious. Once your MediSave reaches the BHS, the MediSave share of your future compulsory contributions overflows to your SA, or later your RA. So filling MediSave sooner brings that overflow forward. Part of a voluntary MediSave contribution can end up working like retirement savings, because the compulsory money that would have filled MediSave goes to your SA instead. The BHS rises over time, so the effect is partial, but it is real.
The money can only be used for approved healthcare. You can't take it out 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 a goal, MediSave is the wrong place for it.
There's also a question of whether you need it. If you are young, employed and well below the BHS, your compulsory contributions will keep filling MediSave anyway. A voluntary contribution adds more than the minimum, but it doesn't change what MediSave can do for you in an emergency. For self-employed people, the picture is different. They have to 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 MediSave contribution tends to suit people who have room below the BHS, a buffer and near-term goals already funded, and a reason to want the tax relief. It also suits people whose MediSave is low compared with what they expect it to pay, for example because they are self-employed or have taken long career breaks.
It suits people less if they are close to the BHS already, if their cash is needed elsewhere in the next few years, or if their reliefs are already near the yearly cap on total reliefs, so the relief would save little.
Mei fits the first group. Her MediSave is lower than Kelvin's because of her freelance years, her emergency fund is in place, and she pays tax at a rate where the relief is worth having. Kelvin, with a flat purchase coming and plenty of room below the BHS through compulsory contributions alone, decided not to this year.
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 your room below the Basic Healthcare Sum and write whether a voluntary contribution fits your plans.
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