Read This Before Using SRS to Save Tax – Part 1: How Does it Work?

 Another good post on SRS

Withdrawals

The “catch” of SRS is that withdrawals before retirement age are subject to a 5% penalty. The amounts withdrawn will also be taxed at the prevailing tax rate. This means that someone who withdraws S$10,000 will only get S$9,500, and the S$10,000 withdrawn is also added to their chargeable income and subject to income tax. SRS is after all meant to help individuals save for retirement, so withdrawals before that are highly discouraged.

Those who start withdrawing when they reach their statutory retirement age, however, can enjoy significant tax savings. Amounts withdrawn after one’s statutory retirement age is subject to lower tax as only 50% will be considered chargeable income.

You can also spread the withdrawals over a 10-year period to maximise your tax savings. The magic number to withdraw each year is S$40,000 a year because 50% of that amount is S$20,000, and assuming you have no other income during retirement, this amount is completely tax free. Given that our income tax structure is progressive, amounts higher than S$40,000 per year still make sense since the tax rates are relatively low at the first couple of brackets or so.