Change in Strategy- Chasing Basic Healthcare Sum

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This is going to be a relatively short post, as I just want to update my latest decision with regards to my Central Provident Fund (CPF).  The information here has been verified and workable after clarification with CPF board, but only for self-employed persons.  Thus, kindly note that this is not applicable for everyone.

Earlier in January, I wrote a post stating my intention to do voluntary cash top-up of SGD 1.2K per year to my Medisave Account (MA), to boost my medical protection, and to grow my CPF account at a risk-free rate of 4% (barring any unforeseen policy changes).  This decision was made because once Basic Healthcare Sum (BHS) is achieved, any additional CPF contribution will flow to Special Account (SA).  This will in turn boost my retirement amount at a risk-free rate of 4% as well.  However, after further calculation and estimation, the usual contribution based on CPF allocation rates will mean that it may take approximately 2 more years before I can reach the BHS number, which increases yearly to meet inflation number.  As such, I decided to make some changes to my strategy, in an attempt to improve the satisfactory level of my fourth level financial health.

Kindly note that this is a personal choice, and a personal record of what I chose to do.  It may not be applicable to everyone.

As a self-employed, I can choose to either contribute to all 3 accounts, namely Ordinary Account (OA), SA and MA in my CPF, based on the allocation rates set by CPF, or, I can choose to just contribute to my CPF MA.  Currently, I am contributing 37% of my monthly income (or more accurately, my monthly net trade income) into all 3 accounts.  From May 2023, I decided to change my contribution, and contribute the whole 37% into my MA only.  However, there is a maximum limit as to how much I can contribute to MA, and be eligible for income tax relief.  Below is an illustration taken from IRAS website on how self-employed persons can do compulsory annual Medisave contribution and voluntary cash top-up to MA.


My income is not high, and thus not affected by the changes announced in 2023 budget.  Based on the above, if there is no misunderstanding on my part, I can contribute 37% of my monthly income to my Medisave and the whole amount will eligible for tax relief, and if my calculations are right, I will be able to reach the BHS by the end of this year.  Upon clarification with CPF board, I was told that I need to ensure 3 conditions are fulfilled:

(1) Capped at 37% of my net trade income; 

(2) The total amount is below the annual CPF contribution cap of SGD 37,740.00; 

(3) The total amount eligible for tax relief is below SGD 80k based on IRAS regulations; 

Since my personal circumstance is fulfilling all 3 conditions above, all is fine and it's a green light!  This means that I am able to perform the new strategy till my BHS is reached before the end of 2023, and get to enjoy tax relief for the contributed amount into CPF MA when I file my taxes next year.  With this, from next year onwards, when I revert back to contributing to all 3 accounts in CPF, my SA, which is meant for my retirement, will be super-charged as the allocation for both SA and MA will be channeled solely to SA, with both accounts compounding at 4%.

That's all!  I have set the record here.  Looking forward to hitting my target, and improve my financial health by one small step.  Thereafter, full retirement sum (FRS) will be my next target.  Slowly but surely, one small step now will be a great leap into my retirement years.  Meanwhile, Barista FIRE, here I come...! 

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