Is Topping Up To Your Child’s CPF and Medisave a good idea?

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It’s a common question: “What to do with spare cash” or “What to do with “Hong Bao” or “Green Packet” money given to your child”?

Where would be a good place to park it?

Today I’d be sharing with you the three methods to topping Up To Your Child’s CPF and some insights to it!

Method 1: Topping Up To Your Child’s CPF Via Voluntary Cash Contribution (VC)

You can use the VC to top up. Link to CPF E-cashier here.

Funds deposited will be broken down to CPFOA, CPFSA and Medisave respectively.

The interest given to your child (assuming less than $60,000 and factoring a 1% extra*) would be 3.5%, 5% and 5% respectively.

*Do note that the extra interest applies only if total accounts are less that $60,000 and all extra interest actually goes to CPFSA.

With the allocation amount at 23%, 6% and 8%, the effective interest is about 4.07%p.a.

If you are keen, there is a cap to take note of which is the Annual CPF Contribution Limit which is $37,740.

If you analyse it, the interest earned in CPFOA is not really appealing because even endowment plans can deliver such returns for you with more liquidity.

The CPFOA accumulated there can only be for his/her future housing or local university studies under CPF Education Scheme.

Hence, methods 2 and 3 below are possibly superior.

Method 2: Topping Up Directly To Your Child’s Medisave

You can top up directly to medisave which can be used for medical needs and private integrated shield plan premiums.  Link to CPF E-cashier here.

In future, your child can even use his/her medisave to pay your hospital bills. #touchwood.

The interest earned in your child’s medisave would likely be 5%p.a.* (factoring 1% extra)

*Do note that the extra interest applies only if total accounts are less that $60,000 and all extra interest actually goes to CPFSA.

If you are keen, there are caps to take note of which is the Annual CPF Contribution Limit which is $37,740 and the Basic healthcare sum (BHS) on the medisave account which is $57,200.

To read more on IRAS deductions for individuals (reliefs, expenses and donations)

Method 3: Topping Up To Your Child’s CPFSA Via RSTU (Retirement sum topping-up scheme)

Usually the RSTU scheme is tapped to save for your own retirement and get relief of up to $7,000.

But it is possible to do RSTU for your child also (but no tax relief to you). Link to CPF E-cashier here.

Interest earned to your child’s CPFSA would likely be 5%p.a.* (factoring 1% extra)

*Do note that the extra interest applies only if total accounts are less that $60,000

More crucially, CPFSA is only for his/her retirement!

Steps to top up for all 3 methods

1) Go to CPF website e-Cashier.

2) Fill in your child’s NRIC and then select “Member”

C) Choose whichever method you prefer from the drop down box.

– Contribute to my three CPF accounts (non-tax deductible)

– Contribute to my medisave (tax deductible)

– Top up my recipients SA under the Retirement Sum Topping-up scheme (shown below)

D) Click “Next” and make payment

To read the full article, you may click on the link below :

https://www.theastuteparent.com/2019/10/is-topping-up-to-your-childs-cpf-and-medisave-a-good-idea/

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