How to use SRS for tax relief: A comprehensive guide

What is the Supplementary Retirement Scheme (SRS)?

The Supplementary Retirement Scheme, or SRS, is a voluntary savings scheme that encourages you to save for retirement while reducing taxable income.

It is basically a complementary scheme to the Central Provident Fund (CPF) system open to Singaporeans, PRs, or foreigners residing in Singapore.

The voluntary contributions made to your SRS account are eligible for tax relief, and the funds within your SRS account can be invested in a wide range of financial instruments such as stocks, unit trusts, and exchange-traded funds (ETFs). 

The SRS in Singapore is a voluntary scheme which encourages you to save for retirement beyond your CPF savings.

The maximum SRS contribution you can make each year is $15,300 for Singapore Citizens/PR and $35,700 for foreigners. 

In summary, the SRS has the following features:

• Contributions to SRS are eligible for tax relief
• You can invest using the funds in SRS
• Investment returns are tax-free before withdrawal
• Only 50% of withdrawal sum from SRS is subject to tax at retirement
• The maximum withdrawal period is 10 years

You can learn more about the SRS with our comprehensive SRS Guide here. 

Why you may consider a SRS top-up for tax relief 

Let’s be honest - nobody enjoys paying taxes.

One way we can reduce our income tax bill is through SRS. 

The higher your income, the more income tax you will have to pay, and the more tax savings you can potentially enjoy by contributing to the SRS. 

For example, if your chargeable income is S$40,000, you will need to pay an income tax of S$350. 

If you were to contribute S$10,000 to your SRS, you will be able to enjoy a tax relief on the S$10,000 contribution, effectively lowering your tax bill by S$350. 

However, if your chargeable income is S$320,000, you will need to pay an income tax of $44,550.

If you were to contribute S$10,000 to your SRS, you will be able to enjoy a tax relief on the S$10,000 contribution, effectively lowering your tax bill by $2,000.

The illustration above is based on the prevailing income tax for Singaporeans and Permanent Reisdents (PRs) for the year of assessment 2023 (YA 2023), and assumes $0 for current eligible tax relief. 

Do note that the personal income tax relief cap of S$80,000 applies for each year, including relief on SRS contributions. 

The following table summarises how much lower your tax bill will be by contributing S$10,000 to your SRS. 

The numbers may not look significant now but let’s put things into perspective. Assuming we work 30 years in our lifetime and the average tax bracket we end up in is “More than $80,000 and less than $120,000”. 

If we contribute to SRS yearly, we will save about $1,150*30 = $34,500.

You can calculate how much you will receive as tax relief when you contribute to your SRS using our SRS Tax Savings Calculator.

Why you may consider against a SRS top-up for tax relief

Note that SRS is ultimately meant for retirement. There are penalties if you were to withdraw before the retirement age.

Early withdrawals are fully subject to tax and will incur a 5% penalty. 

Of course, there will be no penalties if you withdraw on reasonable reasons such as medical grounds, terminal illness and bankruptcy. 

Hence, you should make sure that the funds you are contributing towards your SRS are not needed for emergency use or near-term needs such as buying a property. 

What you need to know after using SRS for tax relief

Unlike funds in your CPF ordinary account that earn an interest rate of 2.5% per annum currently, funds in the SRS account earn an interest rate of 0.05% per annum. 

Hence, SRS can help with your retirement planning in two ways

• Saves money which would otherwise be paid in taxes 
• Instill discipline to put aside a sum of money and use them for investment (otherwise the interest rate will be a just 0.05% per annum)

Unlike CPF, there are more investment options you can consider using your SRS funds, including the following:

• Singapore Savings Bonds
• T-bills and SGS Securities
• SGD fixed deposits
• ETFs 
• Blue chip shares
• Unit trusts
• Endowment insurance plans

If you lack discipline like me, you can consider making SRS contributions and using them for investment purposes.

At least you will not be tempted to look at the stock market every night.

A lot of us say we are investing for the long term but some of us always panic whenever the market drops.

Putting in SRS helps because you cannot take out your money earlier without incurring penalties.

This forces me to put my money in until the statutory retirement age.

If you put in S$10,000 per year over 30 years, you will save about $300,000 as capital.

Assuming that your investment earns about 4% each year over the long term, you will earn about $283,000 in capital gains.

In total, you will have about $583,000 sitting in your SRS when you retire.

This is the power of compounding, and of course discipline.

How do I perform SRS withdrawals at withdrawal age without paying taxes?

When you withdraw on or after the retirement age from your SRS accounts, only 50% of the withdrawals sum is subject to taxes.

Here’s an illustration on what this would mean for how much you would have to pay in taxes at withdrawal. 

If you put aside $7,000 each year into SRS and use it for investment, after 30 years you will have about $408,000 in your SRS account assuming an average return of 4% per annum. 

Based on the income tax rate for Year of Assessment (2024), the first $20,000 of your chargeable income is tax-free. 

This would mean that we can withdraw up to $40,000 per year from our SRS account each year tax-free on or after our retirement age. 

The maximum period over which you can spread your withdrawals is 10 years. The 10-year period will start from the date of your first such withdrawal. 

This means that you can safely withdraw S$400,000 of your SRS funds tax-free over the maximum period of 10 years.

The amount in excess of $400,000 is still taxable. In this case, 50% of the remaining S$8,000 would be subject to the prevailing income tax rate. 

If capital gains are taxable, is it still worthwhile to use SRS for tax relief?

The Ministry of Finance considers the SRS to be a tax deferral scheme. This is because up to $400,000 withdrawal is tax free based on current tax brackets but you are required to pay tax for your withdrawal amount beyond $400,000 at a lower tax bracket in the future. 

The withdrawal amount that is subject to tax comprises your capital, dividend/interest/distribution and any capital gains, all of which are currently not taxable for individuals under non-SRS scheme.

However, you will not be worse off compared to if your SRS contributions were taxed upfront and all subsequent capital gains were exempt from tax. 

How does contributing to SRS compare to a CPF top up for tax relief?

You can top-up your own CPF accounts or those of family members, to enjoy a tax relief. To qualify for tax relief for YA 2024, the cash top-ups should be made in 2023.

The maximum CPF Cash Top-up Relief per YA is S$16,000. This would include a maximum S$8,000 for self, and maximum S$8,000 for family members. 

CPF Cash Top-ups go into CPF Special Account (SA) and Retirement Account (RA) which will offer an interest rate of 4.08% per annum in the first quarter of 2024. 

How does SRS contribution compare to a charity donation for tax relief?

You can do good while lowering your tax payable by donating to Community Chest or any approved Institution of a Public Character (IPC).

To encourage Singaporeans to give back to the community, you can now enjoy tax deductions 2.5 times the qualifying donation amount till 31 December 2023.

Donations must be made before the year ends for the tax deduction to be allowed in the next tax season. 

However, if you’re thinking that making a charity donation can provide you with net savings, then let’s use some math to show why that’s not the case. 

If you earned $100,000 and donated $10,000 to an IPC, your assessable income will fall to $75,000. Based on the previous assessable income of $100,000, your tax payable would be $5,650. With the lower assessable income of $75,000, your tax payable would be $3,000. 

You would have lowered your tax payable by $2,650 with your $10,000 donation, but you will still be donating more than received in tax savings. 

So to consider using this for tax savings purposes, you must be genuinely interested in donating to start with! 

What would Beansprout do? 

The SRS is just one of the many tools you can use for tax relief. 

However, we would consider investing using our SRS funds to be able to earn a potentially higher return. 

Some of the popular SRS investing options include ETFs, Singapore REITs, and T-bills. 

We can also explore other ways to help with our retirement planning, including a CPF SA transfer from OA, or a CPF SA cash top-up.