A sound financial game plan isn’t just about accumulating wealth but also ensuring it’s passed down efficiently. One way to do this is by avoiding tax pitfalls. Starting in Year of Assessment 2024, top marginal personal income tax has risen to 24%, with chargeable income exceeding S$500,000 up to S$1 million taxed at 23%, and that over S$1 million taxed at 24%.1 Effective tax management can lead to significant tax savings, ultimately maximising your legacy pot for future generations. One ally to keep close when it comes to your tax optimisation strategy is the Supplementary Retirement Scheme (sRS financials). In this article, you’ll learn how to leverage this scheme to maximise your income tax reliefs.

A quick introduction to the Supplementary Retirement Scheme (SRS)

The government introduced the SRS to encourage individuals in Singapore to save more for retirement by offering tax-saving benefits – a foresighted move, considering Singaporeans’ increasing life span.

You can invest your SRS funds in various SRS-approved instruments – from low-risk bonds and fixed deposits for stable returns to stocks, unit trusts and even insurance savings plans for potentially higher returns.

The scheme has grown in popularity over the years. According to statistics from the Ministry of Finance, there were 427,188 SRS account holders by the end of December 2023, a 10% increase over the previous year. More than half were aged between 36 and 55, hinting at the scheme’s popularity among individuals at the mid- to late-career level. Total contributions stood at S$18.43 billion, with the three most common investment portfolio components being Insurance (25%), Shares, REITs, ETFs (25%) and Others e.g. Singapore Savings Bonds, Corporate Bonds, Foreign Currency Fixed Deposits and Fund Management (21%).2

The beauty of the SRS lies in its tax incentives. Annual SRS contributions of up to S$15,300 qualify for dollar-for-dollar personal income tax relief. Let’s say you earn S$120,000 a year. Not considering other deductions and tax reliefs you qualify for, your total tax payable would normally be S$7,950. However, if you make the maximum SRS contribution of S$15,300 by 31 December that year, your income tax bill drops to S$6,190.50, a saving of S$1,759.50. While this might not seem a lot initially, maximising this nifty tax-reducing tool over 10 years could save you S$17,595, or even S$52,785 over 30 years.

While you might think the SRS is only relevant to those nearing retirement, anyone aged 18 and above can contribute (here’s how to create an SRS Account). However, before doing so, always consider if you have enough liquidity for your daily needs. This is because SRS funds are designed to be withdrawn only once you reach retirement age (the prevailing retirement age when you made your first SRS contribution) and there are penalties for early withdrawals.

If navigating the SRS still seems overwhelming, start with my PACES guide to using the SRS for tax savings. This framework will help trim your taxes while boosting your retirement adequacy. I’ll also share my golden rule when it comes to tapping the SRS for tax savings.

A – Annual cap for personal income tax reliefs

C – Choose to invest, or not

E – Early bird wins

S – Stagger withdrawals

P – Possible to reverse contributions

You’re free to withdraw funds from your SRS account at any time, but there are costs for premature withdrawals. Withdrawals before your retirement age will incur income tax and a 5% penalty. For example, withdrawing S$100,000 at age 60 instead of waiting until your retirement age of 63 will cost you S$10,650 (S$5,650 tax and S$5,000 penalty). However, as there can be unexpected events in life, premature withdrawals due to death, bankruptcy or on medical grounds such as physical or mental incapacity or terminal illness are not penalised. Premature withdrawals up to S$400,000 due to terminal illness and death are also tax-exempt.

A – Annual c