Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Sunday, 30 May 2021

Transfer CPF Money from Ordinary to Medisave Account


Correction: we made a mistake in our earlier article, and we have thus made the edits. We like to thank our readers for pointing out to us when we make mistake in our research.

Today's topic was suggested by one of our readers.

If you got any questions/topics you would like us to talk about, let us know via the comments below or via this form.

You asked us what are some of the pros and cons of transferring money from your CPF Ordinary Account (OA) to your CPF Medisave Account (MA).

Here is the result of our research.


Background


If would like to know what is your Medisave Account for, click HERE.

But, long story short:

Source: CPF

You can use it to pay for your medical bills, family members' medical bills, as well as pay for medical insurance schemes like MediShield Life.


Can it be done?


Long story short: NO

You cannot transfer funds from your CPF OA to your CPF MA.

But, you can top up your CPF MA in 2 other ways.

  • Voluntary contribution to all 3 CPF accounts (non-tax deductible)
  • Medisave Account only (tax deductible)


Recommended Read: Why We Still Need Insurance Agent


The Pros of topping up CPF MA


Why would anyone want to top up to their CPF MA?

So why would anyone want to transfer money from your CPF OA to CPF MA, here are some of the reasons.

1. Extra interest

CPF OA pays 2.5%+ interest per year

If you are saving money for your medical bills, you are probably stashing it away in some low-risk portfolio that gives less than 1% interest per year.

If that's that case, why not allocate a portion of it into CPF MA, which pays 4%+ interest per year.

Of course, you would still need to keep a portion of it in cash because there's a portion of your medical bills that still requires cash payment.

Just moving money from your OA to your MA gives you an extra 1.5% interest per year.



2. Has a cap

Your MA savings is subjected to a cap, known as the Basic Healthcare Sum (BHS).

As of 2021, the BHS is set at $63,000 for those 65 years old and below.

Any amount that is in excess of your BHS will flow over to your

  • CPF Special Account (SA) - if you are below 55 years old
  • CPF Retirement Account (RA) - if you are 55 years old and above
Source: CPF

So, technically, your CPF MA money is not a bottomless pit where money keeps going in without any way to take out unless you are hospitalised

Your CPF MA will reach a cap, after which money will flow into your CPF SA or CPF RA, where it can be withdrawn (if other conditions are met of course 😉)

For more information on the BHS, click HERE.


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The Cons of topping up CPF MA


Here are the cons of topping up your CPF MA.

While you will get higher interest by making the transfer, there are also cons associated with it.

Here are the cons of transferring money from your CPF OA to CPF MA.

1. One-way street

You cannot un-do the top-up.

Once the money is in your CPF, it's going to be very hard for you to withdraw it out (except if you meet the various T&Cs).

Once you transfer from your CPF OA to your CPF MA, you cannot transfer it back from your CPF MA to your CPF OA.

2. Potentially no tax benefits

If you do a top-up via the Voluntary Contribution (VC), then there is no tax benefit.

However, if you do a voluntary CPF MA-only top-up using cash, the amount that you top up is tax deductible. But, it will be subject to your maximum personal income tax relief cap.

However, if you transferred it from your CPF OA to CPF MA, there is no tax benefit.

3. Less cash

If you kept cash in your pocket, you can use it any way you like. 

Pay for a mortgage, pay for a holiday trip, pay for medical bills, anything!

But once you put it into CPF, the things you can use it for will be subjected to limits and restrictions.

Topping up cash into your CPF MA, while will earn you higher interest, will restrict you to using it only for medical purposes and nothing else.

Some day down the road if you realised you need extra cash to pay for a home downpayment, you cannot withdraw it from your CPF MA to pay for the downpayment.

3. Less ways to use your funds in CPF

If you kept the money in your CPF OA, you can use it for housing, education, insurance premiums, and other purposes.

But if you transfer the money to your CPF MA, you can only use it for medical purposes or to pay for medical insurance premiums.

If you are currently paying your home loan using CPF, if you make a transfer to your CPF MA and cause your CPF OA to have insufficient funds to pay your monthly mortgage, then you might have to pay your mortgage in cash.

In which case, it might be better if you just top up cash into your CPF MA (since this is tax deductible) while paying your mortgage is not.


Recommended Read: Closing my Standard Chartered JumpStart Account


Conclusion


There is no one-size-fits-all solution.

For example, if you got sufficient funds in your CPF OA to pay your mortgage, and would like to grow your CPF MA faster and maximise the interest you are earning from CPF, then you can consider making the top-up.

But, there is no hard-and-fast rule. 

Whether or not to top-up cash into your CPF MA depends heavily on your circumstances.

Whether or not to transfer the money from your CPF OA to your CPF MA, depends heavily on your circumstances.


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2 comments:

  1. You can xfer from SA/OA to MA.

    But only if you already have FRS or BRS with property pledge.

    And the xfer is from SA first. If insufficient to hit BHS, then can further xfer from OA to MA.

    This is mainly targeted at older folks who have set aside their BRS, and want to pump up their MA for likely future medical needs.

    Govt would rather people use their excess SA/OA to pad their MA instead of withdrawing. No prizes for guessing how popular this is LOL.

    ReplyDelete
    Replies
    1. Hi,

      You could, but that is only if the person is over 55 and has met their respective retirement sum.
      And technically, it's a 2 step process
      1) Withdraw from CPF account (OA, SA, or RA, depending on which retirement sum is met).
      2) Deposit the money back into CPF MA.

      But to simplify that process, CPF introduce 1 form that combines the 2 steps into 1 step.
      https://www.cpf.gov.sg/askjamie/user/uploads/Form%20MHC%20TRF%20New.pdf

      Thank you.

      Delete