What Led to Tom's $1.1Mil Windfall (as a self-employed)?

​CPF Top-Ups for Self-Employed Persons: Secure Your Financial Future

​Welcome to another episode of “The Investing Iguana”, the show where I, Iggy, your friendly and fabulous host, help you navigate the wild and wonderful world of personal finance, investing, and retirement planning. Today, we’re going to talk about a topic that is very close to my heart: CPF top-ups for self-employed persons. If you’re a freelancer, a gig worker, or an entrepreneur, this blog post is for you. You might be wondering: why should I top up my CPF as a self-employed person? What are the benefits of doing so? How do I go about it? And most importantly, how can I make the most of my CPF savings for my future? Well, don’t worry, because I’m here to answer all these questions and more. By the end of this blog post, you’ll have a clear and comprehensive understanding of how CPF top-ups work for self-employed persons and how you can use them to achieve your financial goals. So let's dive in!

​Understanding CPF and Its Accounts

Before we delve into the details of CPF top-ups, let’s do a quick recap of what CPF is and how it works for self-employed persons. CPF stands for Central Provident Fund, and it’s a mandatory social security savings scheme that covers all Singaporeans and permanent residents. CPF has three main accounts: the Ordinary Account (OA), the Special Account (SA), and the MediSave Account (MA). Each account serves a different purpose: the OA is mainly for housing and education, the SA is for retirement and investment, and the MA is for healthcare and insurance.

If you’re an employee, your employer contributes 17% of your monthly wage to your CPF accounts on top of your own contribution of 20%. That means you get to enjoy a total of 37% of your income going into your CPF accounts every month. However, if you’re self-employed, things are different. You don’t have an employer to contribute to your CPF accounts. Instead, you only have to contribute to your MA based on your annual net trade income (NTI). The contribution rate ranges from 6% to 8% depending on your income level and age group.

​The Benefits of CPF Top-Ups for Self-Employed Persons

By only contributing to your MA as a self-employed person, you might think you’re saving more cash and have more flexibility in how you use it. However, you might be missing out on some huge benefits that CPF offers, benefits that can make a big difference in your financial well-being in the long run.

1. Building Up Your Retirement Savings Faster
By contributing to your OA and SA as well as your MA, you can build up your retirement savings faster and enjoy higher monthly payouts when you retire. The OA and SA earn higher interest rates than the MA: 2.5% for OA and 4% for SA compared to 4% for MA. On top of that, you also get an extra 1% interest on the first $60,000 of your combined balances across all accounts and another extra 1% interest on the first $30,000 if you’re above 55 years old. This means you can earn up to 6% interest per year on some of your CPF savings!

2. More Options for Growth and Investment
By having more money in your OA and SA, you have more options to use them for other purposes besides retirement. For example, you can use your OA to pay for your housing loan or education loan, or to invest in various products such as stocks, bonds, unit trusts, and ETFs. You can also use your SA to invest in similar products, but with a higher risk profile and a longer time horizon. By investing your CPF savings wisely, you can potentially earn even higher returns than the interest rates offered by CPF.

3. Tax Relief for Your Contributions
You can enjoy tax relief for contributing to your CPF accounts as a self-employed person. If you make voluntary contributions to all three of your CPF accounts (OA, SA, and MA), you can claim tax relief up to the CPF Annual Limit of $37,740 or 37% of your NTI assessed by IRAS for the year of assessment (YA), whichever is lower. This can significantly reduce your taxable income, allowing you to save more money for yourself.

​How to Make CPF Top-Ups

There are two main ways to make CPF top-ups as a self-employed person: voluntary contributions and top-ups. Voluntary contributions are contributions that you make to all three of your CPF accounts (OA, SA, and MA) in one lump sum. You can do this online or offline, and the minimum amount is $10, while the maximum amount is the CPF Annual Limit. Top-ups, on the other hand, are contributions that you make to only one or two of your CPF accounts (OA or SA or MA) in any amount and frequency.

Remember, contributing to your CPF accounts as a self-employed person has many benefits that can help you secure your financial future. By taking advantage of CPF top-ups, you can build up your retirement savings faster, enjoy tax relief, and have more options for growth and investment. So start saving smartly, investing wisely, and secure a happy retirement!

"Investing is a long-term game. Be patient, disciplined, and informed." - The Investing Iguana