3 Reasons for my Voluntary Top-Up to CPF Medisave Account

 

After the latest contributions for Dec 22 salary and interests, my CPF Medisave account balance is as follows:

I just contributed $1,820.10 to my CPF Medisave account using eNETs (to be discontinued in Apr 2023) which will take one day for the amount to be credited to CPF. 

I tried using PayNow but was hit by a $1k limit which will take 12 hours to effect limit change. The benefit of using Paynow is to credit the monies to CPF almost instantanteously.

This irreversible action will max out my MA at the basic healthcare sum of $68,500 for 2023.

Let me share the 3 reasons why I did so.

1. Tax Relief

The first and foremost motivation is to enjoy tax relief for the amount I contributed to CPF Medisave Account. I would rather pay cold hard cash into my own illiquid vault which can be used to pay for insurance premiums as well as medical expenses if necessary in future, rather than contribute to nation building which is a rather intangible thing that I can enjoy. Do note that the tax relief for Medisave voluntary Top-Up and Retirement Sum Top-Up (RSTU) have a combined cap at $8k.

2. No More Retirement Sum Top Up

As I have attained the Full Retirement Sum (FRS) in CPF Special account last year, I am no longer able to make RSTU into my CPF Special Account despite a higher FRS of $198,800 this year. This is thanks to the interests from Special Account which far exceed the increase in FRS amount, allowing my Special Account to be above the FRS forever. Thus, it is financially beneficial to achieve FRS in our lives as soon as possible. Since I cannot top up Special Account anymore, I can only make voluntary top-up to my Medisave Account.

3. Compounding Effect

Besides enjoying at least 7% of tax savings in my case, the CPF Medisave Account pays at least 4% of interest per annum. Altogether, I get to reap at least 11% of returns on my cash contributed into Medisave Account. Like the compounding effect for Special Account, once we have attained basic healthcare sum (BHS) at any point in our lives, our Medisave Account should compound at 4% and automatically stays above the BHS forever, assuming no large drawdowns of Medisave savings for medical expenses. By maxing out the Medisave Account, our CPF contributions from work will overflow into the Special Account, which has become harder to grow after attaining FRS.

Moving forward, I plan to top up my Medisave Account after deductions for CareShield and MediShield Life premiums as there is up to $8k of tax reliefs and I gotta milk as much of it as possible.

Thanks for reading. Stay focused and remain steadfast as always!

With love & peace, 

Qiongster