Defer RSTU cash top-up till Income Level reaches higher tax bracket, yay or nay?

Taxes are essential for nation-building and developing Singapore into a stronger community, a better environment and a more vibrant economy. While it is crucial for the nation to collect more taxes; taxes at the same time is an expense out of the pocket for an individual — reducing the amount of taxes payable through legit means is a key and financially smart move.

We aim to avoid paying too much income taxes by maximise our tax reliefs. There is no change in total tax reliefs amount for Year of Assessment (YA) 2019 — personal income tax reliefs is still subject to an overall relief cap of $80,000.

The main aim is to hit as much tax reliefs as you can under the various categories, as found on the Ministry of Finance (MOF) website. By doing so, you bring down your tax bracket by one, two and sometimes even three tiers.

For example, an individual earning $130,000 annually is in the 15% tax bracket without any tax relief. If she can somehow maximise the tax reliefs of $80,000, her chargeable income becomes $50,000 — she is now in the 7% tax bracket. For $130,000, the gross tax payable is ($7,950 + [$10,000 x 15%]) = $9,450. For chargeable income of $50,000, the gross tax payable is ($550 + [$10,000 x 7%]) = $1,250. A tax savings of ($9,450 – $1,250) = $8,200.

Chargeable IncomeGross Tax payableChargeable IncomeIncome Tax rateGross Tax payable
First $20,000$00%$0
First $20,000$0Next $10,0002%$200
First $30,000$200Next $10,0003.5%$350
First $40,000$550Next $40,0007%$2,800
First $80,000$3,350Next $40,00011.5%$4,600
First $120,000$7,950Next $40,00015%$6,000
First $160,000$13,950Next $40,00018%$7,200
First $200,000$21,150Next $40,00019%$7,600
First $240,000$28,750Next $40,00019.5%$7,800
First $280,000$36,550Next $40,00020%$8,000
First $320,000$44,550Next $40,00022%

Hitting the maximum tax reliefs of $80,000 is the most ideal, though this is usually not the case. However, aiming for at least 25% – 50% of tax reliefs should not be that hard to do so.

I wanted to concentrate this discussion on tax reliefs arising from CPF & SRS cash top-ups / contributions.

It is a general rule of life. During your time in the workforce, your earning power gradually increases from the time you step into the world, sometimes taper off or even decreases as you take on less demanding role prior to your retirement. More income means you potentially move into a higher tax bracket and pay more taxes as you grow older.

For RSTU cash top-up to SA, besides the yearly limit of $7,000 for tax reliefs, there is also the hard cap of FRS amount for SA account.
For contribution to SRS, there is only the yearly limit of $15,300 for tax reliefs with no hard cap for SRS account.

There are 2 camps of thoughts:

  1. Don’t reach FRS amount in your SA so early in life. Use RSTU cash top-up to your SA for tax reliefs later in life when your income tax bracket is much higher.
  2. Reach FRS amount in your SA early in life and enjoy the fruits of compounded interests over a longer period of time.

I am in the second camp, and will pen down some of my thoughts on why you need not wait or defer to a higher tax bracket before starting your RSTU cash top-up to SA. We know the cons of RSTU cash top-up to SA, so I am not going to dwell on the one-direction cashflow, its liquidity, risk of policy changes etc.

Many ordinary Singaporeans do not earn a high annual salary of $100,000 and above. The average annual salary in Singapore is $63,312; averaging out $5,276 per month, inclusive of the employer’s CPF contribution. The Median Gross Monthly Income from work (including Employer CPF contributions) of full-time employed residents is $4,563 per month. In short, many Singaporeans are in the 7% tax bracket or under. This has not even taken into account tax reliefs to bring down the tax bracket even further to 3.5% or even 2% tax bracket.

You would probably be doing very well to be in the high end of the 15% tax bracket or annual earning of $159,999. This translates to a salary of about $13,333 per month (without bonus) or $10,667 (considering 3 months bonus) per month. I thought I would use this higher-end case as an example for discussion.

Consider a Singaporean man in his early forties having phased into MINDEF Reserve (MR) and earning an annual salary of $159,999. He has also maxed out his CPF SA by RSTU cash top-ups in his early thirties. Possible tax reliefs he can employ for his income level:

Tax Relief typeTax Relief Amount
Earned Income Relief
(Below 55 years old)
Provident Fund$20,400
SRS contributions$15,300
NSmen (Inactive)$1,500
Parent relief (for 1 parent,
taxpayer does not stay with dependant)

The chargeable income is now $116,299 or brings him to 11.5% tax bracket. It would be a tall order to bring it down 7% tax bracket by maximising $80,000 tax reliefs: $159,999 – $80,000 = $79,999.

Nonetheless, the above table do not include other possible scenarios for tax reliefs to further bring down the chargeable income e.g. having children: Working Mother’s Child relief, Grandparent Caregiver relief, Foreign Maid Levy relief, Qualifying Child relief and even Parenthood Tax Rebate.

Some people feel that it is not as worth initiating RSTU cash top-up to your SA early in your work life, as low tax bracket means you don’t seemed to enjoy the higher tax savings that you might at a higher tax bracket later in life. At 3.5% tax bracket early in your career for example, you only enjoy $7,000 X 3.5% = $245 in tax reliefs.

The point I wish to make here is that it is not the end of the world when your SA reaches FRS. At 11.5% tax bracket, he is missing out on $7,000 X 11.5% = $805 tax reliefs annually; at 7% tax bracket, $7,000 X 7% = $490 tax reliefs. Even if we look at the highest tax bracket of 22%, he only missed out on $1,540 for not being able to RSTU cash top-up his SA.

Comparatively, if his SA is maxed out at prevailing FY2020 FRS of $181,000, the interest earned (4% p.a.) is $7,240.

To me, it does not make sense to defer your RSTU cash top-up your SA to FRS, if it does not yield any real advantages. The earlier one reaches FRS in his SA, the faster he allows the nature of compounding interest to take over.

Is deferring of RSTU cash top-up to SA being overrated to you?

Withdrawals of CPF savings from 55 — How much can you withdraw from your CPF SA / OA / RA Scenarios

I wanted to strengthen my understanding as well as my readers’ on CPF lump sum withdrawal from age 55 after my last post on whether you can withdraw ALL excess money from your CPF SA / OA account after meeting FRS / BRS. Some questions got me thinking, but I thought that just thinking ain’t going to get me far in my understanding without playing out the various scenarios applicable with real numbers.

  • How much can you withdraw from your SA/OA after setting aside FRS in your RA?
  • How much can you withdraw from your RA if you pledge your property, thus setting aside BRS amount instead?
  • Could you withdraw ALL the difference between FRS and BRS? Or some? Otherwise how come none in other scenarios?
  • How is mandatory contribution (employer/employee) treated differently from OA to SA transfers and RSTU cash top-up? Or how similar are they treated in the calculation of RA withdrawal?

Theoretically, withdrawal of CPF savings from age 55 “is this simple” from the below table, found in the CPF website.

In reality, there are so many scenarios depending on your circumstances; some straightforward, others requiring more than a little logical thinking.

I spent a night of deep thoughts and broken them down into as many different scenarios I can think of, from the various combinations of without/with property pledge, meet/does not meet FRS, various contribution types (mandatory, OA to SA transfers, RSTU cash top ups) and amounts in the SA/OA savings.

Assuming prevailing FY2020 FRS of $181,000 and BRS of $90,500.

Without Property Pledge

The scenarios under no property pledge is straightforward enough; you are able to draw only from your SA/OA accounts and nothing from RA.

(First 9 columns): No matter how much SA/OA savings you have, you can only draw up to a maximum of $5,000 if you are unable to meet FRS in your RA and no property pledge done. The exception is if you have less than $5,000 in your SA/OA savings at 55; you can withdraw ALL of your monies which is between $1 to $5,000.

(Last 3 columns): If you meet FRS in your RA, you can withdraw the excess beyond FRS ($181,000), residing in your SA/OA savings.

How much RSTU cash top-ups done is not a factor here as there is no withdrawal from RA (with a property pledge).

With Property Pledge

We have discussed above how much you are able to draw only from your SA/OA accounts without doing property pledge. By pledging your property, you are able to withdraw a further $X amount up to a maximum of between FRS and BRS amount (up to $90,500).

You need to have minimally BRS amount ($90,500) in your RA account (which is created from your SA/OA savings) to be entitled to participate in the scheme. Thus in the examples in the table, age 55ers who have $4,000 or $10,000 which is less than BRS amount cannot pledge property.

Interests earned and top-ups under RSTU and government grants are not included in the calculations for how much monies you can withdraw from your RA.

If you do not meet FRS in your RA but still qualify to pledge property, the amount you are eligible to withdraw from RA must include the $5,000 that is eligible to withdraw from your SA/OA savings. In short, eligible withdrawal amount from RA:

If FRS is not met, withdrawal amount from RA is equals to
Total SA/OA savings — RSTU Cash top-up — BRS amount — $5,000

If you meet FRS in your RA and pledge property, the amount you are eligible to withdraw from RA does not include the $5,000 in the calculation.

If FRS is met, withdrawal amount from RA is equals to
Total SA/OA savings — RSTU Cash top-up — BRS amount

With Property Pledge — A closer look at how RSTU cash top-up affects eligible withdrawal amount from RA

For starters, OA to SA transfers are considered as the same category with mandatory contributions. This is why columns 1 & 2, as well as columns 4 & 5, have the same results or $X amounts when you play around with the figures.

If we look at column 3 and 6, whereby RSTU cash top-up forms a proportionately large amount of SA/OA savings, we find that the eligible $X from RA also falls when the formula is applied.

If FRS is not met, withdrawal amount from RA is equals to
Total SA/OA savings — RSTU Cash top-up — BRS amount — $5,000
If FRS is met, withdrawal amount from RA is equals to
Total SA/OA savings — RSTU Cash top-up — BRS amount


We know that OA to SA transfers is not considered under the calculation to derive eligible amount for withdrawal from RA, while RSTU cash top-up does affect. However, this should not deter your decision to continue contributing to your CPF SA for the following reasons:

  • Enjoy up to $7,000 tax reliefs on an annual basis when you do RSTU cash top-up
  • Build up your retirement account faster and also to enjoy the higher interest bearing SA account
  • Increase your future CPF LIFE monthly payouts by indirectly building up your RA account

Can you withdraw ALL excess money from your CPF SA / OA account after meeting FRS / BRS?

Most of the time when we talk about CPF contribution, we are usually thinking more of the Employer / Employee contributions. Let’s not forget, CPF contributions for freelancers or Self-Employed is equally important for retirement planning.

This interesting question just popped up today:

Can RSTU cash top-up to SA be withdrawn from age 55 onward after meeting FRS (or BRS with property pledge) in RA account?

There are 3 objectives of building up the firepower in your CPF account:

  • Enjoy a larger sum of money at a higher interest-bearing account in your CPF
  • Maximise tax reliefs by doing RSTU cash top-ups
  • Increase the CPF LIFE monthly payouts in time to come, which is supported by annuity premium paid from your RA monies.

How much can I withdraw from age 55?

From age 55, you can withdraw up to $5,000 from your Special and Ordinary Accounts, or your CPF savings after you have set aside your Full Retirement Sum in your Retirement Account, whichever is higher.

Your Full Retirement Sum can be set aside fully with cash, or with cash (i.e. at least the Basic Retirement Sum) and property. For the latter, it will exclude interest earned, any government grants received and top-ups made under the Retirement Sum Topping-up Scheme.

If you were born in 1958 or after, you also have the option to withdraw up to 20% of your Retirement Account savings as at age 65. This includes the first $5,000 that can be withdrawn from age 55.

When you reach age 55, your RA account is created first with monies from your SA account, then OA account, up to FRS amount. MA monies remain status quo for medical related expenses, claims and hospitalisation insurance premiums.

The excess monies after meeting FRS (or BRS amount with property pledge) can be withdrawn at any time.

BUT… how much of this excess monies can be withdrawn actually?

By top-ups, i refer to:

  • Voluntary Contribution to All 3 accounts (OA, SA and MA);
  • RSTU cash top-up to SA;
  • Top-up MA only

If you meet FRS amount in your RA however, it is a clear-cut that you can withdraw the excess from your SA/OA.

How about for people who intend to pledge property, to withdraw the gap between FRS and BRS from their RA. Can they withdraw ALL of it between? How much more can they withdraw?

Prevailing FRS amount for FY2020 is $181,000.

Scenario 1: Assuming that you had OA ($0) and SA (made up of $100,000 mandatory contribution and $100,000 RSTU cash top-up) on the day of age 55. Your RA is newly created with $181,000 monies, with excess $19,000 in SA account. You will be able to withdraw this $19,000 from your SA since you met FRS. If you further pledge property to meet FY2020 BRS amount ($90,500), you will be able to withdraw the excess, or $9,500 amount from your RA. Total amount withdrawn = $19,000 + $9,500 = $28,500

Scenario 2: Assuming that you had OA ($0) and SA (made up of $50,000 mandatory contribution and $150,000 RSTU cash top-up) on the day of age 55. Your RA is newly created with $181,000 monies, with excess $19,000 in SA account. You will be able to withdraw this $19,000 from your SA since you met FRS. If you further try to pledge property to meet FY2020 BRS amount ($90,500), you actually have no excess withdrawable from your RA. Total amount withdrawn = $19,000 + $0 = $19,000.

To end off, it is very clear as well from the CPF website on the use of top-up monies in the calculation and withdrawal of excess CPF monies after meeting BRS amount.

How can top-up monies be used?

Top-up monies are set aside specifically for retirement needs and can only be used for monthly payouts under the Retirement Sum Scheme, or CPF LIFE1. It cannot be withdrawn in cash or used for any other purposes such as education, investment, insurance premium payments, housing etc. 

Top-up monies will form part of your retirement sum. However, top-up monies in the RA will not be taken into account in computing how much RA savingscan be withdrawn in cash (for property owners), as well as how much RA savingscan be used for housing purpose and CPF transfers to spouses. 

Note that non top-up monies will be used first before top-up monies.  
RA savings refers to the cash set aside in the RA (excluding amounts such as interest earned, any government grants received and top-ups received under the Retirement Sum Topping-Up scheme).

Scrip Dividends — choose Cash, sure Lose?

Everyone might be familiar with the paradox of the Prisoners’ Dilemma — one of the most popular concept in modern game theory in Economics. By nature, individuals tend towards acting in or protecting their own interests, by not cooperating with one another, they tend to find themselves in a worse state than they would have by cooperating.

I wrote about understanding Scrip Dividend Scheme better in a previous article. Scrip issue usually enlarges the company’s share capital base, through the creation of new shares. New shares lead to share dilution, potentially. Existing shareholders faces share dilution if they opt for cash over scrip. Shareholders who opt for scrip over cash minimally maintain or increase their stake (depending on the subscription rate) at the expenses of the earlier camp.

There is no right or wrong; the decision on choosing scrip over cash dividends or vice-versa is entirely an investment decision depending on what you plan to do with the counter in the future.

Similar to the Prisoners’ Dilemma, we can look at 4 outcomes from the Investors’ Dilemma. One of the common consideration to investors when presented with a choice of scrip versus cash — How will I lose out? What do I stand to gain from one over the other?

Scenario 1 — ALL shareholders opt for cash. No cash dividend is retained in the company. No new shares are created, and shareholders see no change in their shareholdings.

Scenario 2 — ALL shareholders opt for scrip. Cash dividend is fully retained in the company to strengthen its working capital position. New shares are created, but shareholders still maintain the same stake in their shareholdings.

Scenario 3 — A mixture of scrip and cash is chosen. Scenario 1 and 2 are highly unlikely to happen. Scenario 3 is the most common, but it usually skews towards one of the extreme Scenarios 1 or 2 depending on the attractiveness of the discount to current market price.

From an investor’s perspective, the best scenario happens when everyone chooses cash dividends, though it being a ‘detrimental’ one for the company. Everyone ‘loses’ in a sense if everyone chooses scrip — you seemed to have received value when you don’t actually have.

How much do investors who opt for cash over scrip actually lose out?

A case example — Oversea-Chinese Banking Corp (O39)

Among the 3 listed Banks in Singapore, OCBC has the greatest propensity to offer scrip dividend over the years — the 15th time since the Global Financial Crisis in 2009. With a dividend of 15.9 cents per share, it would cost the bank $700 million in cash (representing 49% of the Group’s 1H2020 net profit) for 1H 2020 dividend distribution. A participation rate of 80% by shareholdings means that OCBC could potentially preserve $140 million for working capital.

The participation rate has been healthy over the years, by consistently offering a 10% discount on the final weighted average price over a referenced time period. Between 70% – 85% of shareholdings have opt for scrip over cash and even then, the percentage of new shares created is roughly 1.5% – 2.0% each time.

PeriodParticipation rate
(% of shareholdings)
% increase
(in ordinary shares)
Interim 2020Yet to knowYet to know
Interim 201976.62.0
Final 201870.51.5
Interim 201876.21.5
Final 201578.91.7
Interim 201579.21.6
Final 201482.81.6
Interim 201484.11.5
Final 201383.01.6
Interim 201180.41.5
Final 2010Data not availData not avail
Interim 201080.81.5
Final 2009Data not availData not avail
Interim 200980.81.6
Final 2008Data not availData not avail

To the common retail investors, yes there is share dilution experienced, but the dilution is negligible when compared to rights issue or secondary public offering. We can see from the following table the % dilution should one opt for cash over scrip when new shares are issued.

% increase
(in ordinary shares)
% dilution
(in stakeholding)

For this round, all 3 listed local banks have offered scrip dividends. Even if all shareholders opt for scrip over cash, the percentage of new shares increase amount to only DBS (0.8%), UOB (1.6%), OCBC (2%).


In all likelihood (referencing to previous Scrip Dividend exercises), many shareholders are going to subscribe for scrip for OCBC, unless they need cash urgently or unable to exercise for scrip (e.g. custodian account). Shareholders who do not would obviously “lose out”, though the effect is not as apocalyptic or worrying as some have put it. In fact, these same said investors could still increase their stake later on by buying more in terms of board lots (with their cash dividends and cash) instead of receiving odd lots now.

The Investors’ Dilemma, even if it holds some truth, is that investors who act alone may find themselves in a worse state than they would have by cooperating; but worse state is subjective and the effect itself is only marginally negative.