You will build a model that follows one SRS contribution from relief to withdrawal.
Shu Ting liked the rule from lesson 4.4, When SRS saves tax and when it does not, but she wanted to see it in her own numbers before putting S$10,000 into an account she couldn't touch for thirty years. So she opened her tax workbook, added a tab called "SRS model", and gave herself thirty-five minutes.
This exercise builds the same model. It follows one year's contribution from the relief you get now, through the years it grows, to the tax on the way out, and compares it with keeping the money outside SRS. You'll need your rebuild sheet from lesson 1.4, Rebuild your tax bill from scratch, and the IRAS pages on SRS.
Set up a block of input cells at the top of the tab, each clearly labelled:
Contribution: the amount you're thinking about, within the current IRAS limit Tax saved now: worked out in step 2, not typed in Assumed yearly return: what the investments inside might earn, after costs Years to first withdrawal: from now to your statutory retirement age Effective withdrawal rate: the share of the withdrawn money you expect to lose to tax
Every one of these except the first is an assumption. Label them that way. The return and the withdrawal rate are guesses about decades ahead, so you'll test several values in step 5.
Shu Ting's inputs, all examples: a S$10,000 contribution, a 4% return, thirty years, and an effective withdrawal rate of 1.5%.
Don't multiply your contribution by your marginal rate. Link to your rebuild sheet instead. Take your expected chargeable income, subtract the contribution, run it through your band formulas, and take the difference in tax.
Shu Ting's expected chargeable income was S$79,000. Taking off S$10,000 left S$69,000, still inside the 6% band of the practice table, so the tax saved was S$600. If her contribution had crossed into the band below, the sheet would have caught it.
The balance at withdrawal is the contribution multiplied by one plus the return, raised to the power of the number of years. In a spreadsheet that's a single formula. For Shu Ting, 1.04 to the power of 30 is about 3.24, so S$10,000 becomes about S$32,434.
The tax on the way out is that balance times your effective withdrawal rate. At 1.5%, that's about S$487, leaving S$31,947.
Where does the 1.5% come from? It stands for two things from lesson 4.3, The tax on withdrawal, and what early withdrawal costs: the taxable share IRAS sets, and the rate that taxable part would be taxed at in the years you spread the withdrawals over. If you want more detail, add a small table: one row per withdrawal year, the amount withdrawn, the taxable part using the IRAS share, any other taxable income you expect that year, and the tax from your band formulas. Your effective rate is the total tax divided by the total withdrawn. Use the current IRAS rules for the share, knowing they may change.
Now model the alternative. Without SRS, the contribution would have been taxed as income. What's left after that tax is your contribution minus the tax saved in step 2. Invest that amount outside SRS at the same return for the same number of years.
For Shu Ting, that's S$10,000 minus S$600, so S$9,400, which grows to about S$30,488. Gains on investments held for the long term are generally not taxed in Singapore, so nothing comes off at the end. Module 5, Declare investment, rental and side income correctly, explains when that isn't true.
The net benefit is the SRS amount minus the outside amount: S$31,947 minus S$30,488, which is about S$1,459. That matches the rule from lesson 4.4, the gap between 6% and 1.5% applied to the grown balance.
A single answer from a thirty-year model is not worth much on its own. Change one input at a time and watch the net benefit.
Shu Ting lowered the return to 2%. The balance fell to about S$18,114 and the net benefit to about S$815. Smaller, but still positive, because the gap between her two rates hadn't changed.
Then she raised the effective withdrawal rate to 6%, the same as her marginal rate now. The net benefit fell to zero. Above 6%, SRS would leave her worse off. That told her exactly what would have to go wrong for SRS to hurt: a retirement with enough other taxable income, or a change in the rules, to push her withdrawal tax above today's rate.
Last, she wrote one line under the model about what the numbers leave out. The S$10,000 would be unavailable until her statutory retirement age, and an early withdrawal would make the whole amount taxable, plus a penalty. Her emergency fund and near-term goals were funded without it, so she could live with that.
Build yours with your own figures, run the same two tests, and write the net benefit of one year's contribution for the activity.
Build the model with your own figures and write the net benefit of one year's contribution against not contributing.
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