Sunday, January 21, 2018

Why I am topping up my parents CPF

Short answer: Because there's tax benefits.

Long answer:

Since entering the working world, I was introduced to the lovely trio of taxes, cpf.. and payments to parents.

A good way to combine the 3 (with your parents approval beforehand) is to top up their cpf.

I'm lucky that my parents don't need my monthly payments to survive which allows me to contribute to the top up cpf scheme.

As my mum currently is not working, below 55 and her special account has <Full Retirement Sum (FRS) - it means that instead of paying her cash monthly - topping up her CPF would qualify me for the tax benefits! (up to 7k)

Source: CPF website

Of course the tax savings i achieved could then be used to treat my parents to a big meal :P

Just some # - since I pay my parents 1k a month now

1) I top up my mum's SRS account with 7,000 at the start of the year - to earn interest as CPF interest is calculated monthly

2) Set up a scheduled payment with ibanking of 1,000 as such

and done! Using quick maths - reducing my taxable deductible income by 7k at a 7% tax rate means i save $490 a year! - enough to treat my family to a good meal instead of contributing to nation building

Also the 7,000 in my mum's cpf earns a 4% interest rate = additional $280 a year.

The downside is that my mum is probably never going to reach the FRS anytime soon - so that 7k is going to get transferred to her retirement account and payout at 65 - but if your parents dont need the money for day to day - then this is totally fine

Would love to hear whether other bloggers out there are doing the same:) - Finance stuff