An SRS or Supplementary Retirement Scheme account is a savings plan offered to Singaporean residents as a means of providing for their retirement. It is an attractive option for many because of its tax benefits and investment options. However, understanding the withdrawal rules and penalties associated with SRS accounts is crucial to ensure that you make informed decisions about your savings.
Here’s a guide on how to understand the withdrawal rules and penalties associated with SRS accounts.
SRS accounts come with a penalty for early withdrawals. If you withdraw any amount from your SRS account before the age of 62, you will have to pay a penalty of 5% of the withdrawn amount. This penalty is on top of the income tax that you will have to pay on the withdrawn amount.
You can make penalty-free withdrawals from your SRS account if you meet any of the following conditions:
- You have reached the age of 62.
- You have passed away, and your beneficiary receives the balance in your SRS account.
- You become permanently incapacitated.
The amount you can withdraw from your SRS account each year is subject to withdrawal limits. The withdrawal limit is based on the balance in your SRS account at the start of the year, and it varies according to your age.
For example, if you are below 60 years old, the withdrawal limit is 10% of the SRS account balance at the start of the year. If you are 60 years old or above, the withdrawal limit is 20% of the SRS account balance at the start of the year.
Taxation on Withdrawals
Withdrawals from your SRS account are subject to taxation. The amount withdrawn will be included in your taxable income for the year, and you will have to pay income tax on the withdrawn amount. However, there is a 50% tax concession on withdrawals made after the age of 62.
SRS accounts offer various investment options, including stocks, bonds, and unit trusts. It’s important to understand that the investment options come with risks, and the returns are not guaranteed. It’s essential to research and seek advice from a financial advisor before making any investment decisions.
In conclusion, SRS accounts are an excellent way to save for retirement, but it’s crucial to understand the withdrawal rules and penalties associated with them. Always make informed decisions about your savings and seek professional advice when needed.