You will be able to fit SRS withdrawals into the drawdown plan so they are taxed lightly.
Jasmine has put money into SRS for about ten years, mostly in December when her tax bill made her think about it. The balance is about S$150,000 in this example, invested inside the account. She has always known how SRS saves tax going in. She had never thought about the other end: how the money comes out, and how much of it IRAS keeps.
That end is where most of the planning lies, and the decisions are about timing. Tax & Reliefs: how your income tax works and the reliefs you can claim teaches the tax rules in module 4, Run SRS from contribution to withdrawal, and IRAS publishes the current limits. This lesson fits SRS into the drawdown map so the withdrawals are taxed as lightly as the rules allow.
SRS withdrawals get favourable treatment from the statutory retirement age that applied when you made your first contribution. That age is locked in at your first deposit, even if the statutory age rises later. Check the age that applies to you in your SRS statement or on the IRAS website.
From that age, two things work in your favour. Only part of each withdrawal counts as taxable income, a share IRAS sets. And you can spread withdrawals over a number of years, up to a limit in the rules. Before that age, withdrawals are fully taxable and a penalty usually applies, with exceptions for cases such as death or serious illness.
In this example, Jasmine's SRS retirement age is 62.
Singapore's income tax is progressive. The first slice of each year's chargeable income is taxed at a low rate or not at all, the next slice at a higher rate, and so on up. IRAS publishes the bands and rates for each year.
That shape rewards spreading. Suppose Jasmine took the whole S$150,000 out in the year she turns 63. The taxable part would all land in a single year, and much of it would fall into the higher bands. If she spreads the same money over eight years, each year's taxable part is about an eighth as large and sits mostly in the lowest bands. The total tax can be far lower, even though the total withdrawn is the same.
Spreading also keeps the rest of the money invested inside SRS while it waits. Jasmine's SRS holds a mix of bond and equity funds that she assumes earns 4% a year in this example, so her yearly withdrawals grow a little as she goes: about S$21,000 at 63, rising to about S$28,000 at 70, with the account empty after the eighth withdrawal. On plain arithmetic, S$150,000 over eight years would be S$18,750 a year. The growth inside the account makes each step larger.
The amount of tax a withdrawal attracts depends on everything else that is taxable that year. So the best years to withdraw are those with little other taxable income.
Write your other taxable income beside each year of your drawdown map. For most people that list holds part-time or freelance pay, rent from a room or a property, and any other income IRAS taxes. CPF LIFE payouts aren't on it, because CPF payouts are not taxable income. Check how each of your income sources is treated on the IRAS website.
Jasmine's list is short. From 60 to 62 she earns about S$18,000 a year from part-time consulting. From 63 she has no taxable income except what she draws from SRS. So 62, the first year she can draw without penalty, is actually an expensive year, because the SRS withdrawal would sit on top of her consulting fees. 63 onwards is cheap.
That is why her map in lesson 3.2, Which account to draw from first, starts SRS at 63 and spreads it over eight years to 70. Every withdrawal lands in a year when SRS is her only taxable income.
A few situations can upset the plan.
If you are still working full-time at your SRS retirement age, you don't have to start withdrawing. Your withdrawal period begins with your first withdrawal after that age, so starting later can move withdrawals into years after your salary stops. Check the current rule on the IRAS website before relying on it.
If you plan to rent out a room or a property in retirement, the rent goes on the same tax bill. A good tenant in the same years as your SRS withdrawals can push both into a higher band.
If money is still in the account when the withdrawal period ends, the rules treat it in a set way that may cost more tax than spreading would have. Plan to empty the account within the period.
If you die with money in SRS, there is no nomination for it. The balance goes to your estate and follows your will, or the intestacy rules if there is no will, which module 7 covers. That is one more reason to draw it down during your own lifetime rather than leave it as the last pot.
Your personal reliefs still reduce chargeable income in retirement, though some reliefs depend on earned income and fall away when you stop work. Look up which reliefs you will still qualify for in the years you plan to withdraw. Tax & Reliefs, module 2, covers them.
For the activity, you'll need three things: your SRS retirement age, the balance in the account today, and a list of your other taxable income for each year from that age onwards. Put the income list beside your drawdown years before you choose where the withdrawals go.
Write the year your SRS withdrawals can start and the years you would spread them over, with your other income in each.
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