Pros and Cons of Topping Up Your CPF MediSave Account
With healthcare costs increasing over the years, having adequate medical savings is important. Every month, part of our mandatory CPF contribution flows towards our MediSave Account (8% to 10.5% depending on our age). Unlike the other CPF accounts which we can use for retirement and other purposes, MediSave can only be used for medical expenses.
Unlike our other CPF accounts, there is no minimum sum we need to save in our Medisave. Instead, there is a maximum cap on our MediSave savings, also known as the Basic Healthcare Sum. For those of us turning 65 this year, the BHS is $63,000.
This makes topping up our Medisave a personal choice. In fact, if we wish to top up our MediSave, we can only do so through the CPF Voluntary Contribution.
Before deciding if we should top up our MediSave, here are some pros and cons to consider.
Pros: #1 Earn Good And Stable Returns Of At Least 4%
As part of our CPF scheme, we earn a 4% interest rate per annum for our savings in MediSave. Additionally, it is possible to receive additional interest rates based on the amount we have.
For those of us aged 55 years old and below, the first $60,000 in our combined CPF accounts (with up to $20,000 from Ordinary Account (OA)), will get an additional 1% interest rate per annum. That adds up to 5% per annum on the portion of our MediSave that is within the $60,000 balance.
Those aged 55 and above earn an extra 1% additional interest on the first $30,000 of combined balances (with up to $20,000 from OA), thus earning up to 6% per annum for the portion of our MediSave that is within the combined balances.
If we top up our MediSave, we can receive a stable interest rate of at least 4% per annum which is much higher than the interest for saving accounts.
Pros: #2 MediSave Can Be Withdrawn For Medical Usage Or Approved Health Insurance Any Time For Yourself Or Your (Eligible) Loved Ones
Unlike the other accounts in CPF where our savings are mostly restricted till retirement, the savings in MediSave can be used any time for our own healthcare needs and that of our loved ones.
First, we can use MediSave for approved healthcare and disability insurance payments. Healthcare insurances include MediShield Life, which is a mandatory health insurance plan for all Singaporeans, and it can be paid in full by our MediSave. Additionally, under the Private Medical Insurance Scheme, we can use MediSave to purchase Integrated Shield Plans (IPs) for ourselves and family members. The payment on our private premiums is, however, subject to the Additional Withdrawal Limit (AWLs) cap.
Likewise, disability insurances such as CareShield Life and ElderShield can be paid in full using MediSave. Premium payments for supplements on CareShield and ElderShield can only use a maximum of $600 a year from MediSave.
Secondly, MediSave can be used at all public healthcare institutions and approved private hospitals and medical institutions. We can use our Medisave to pay for a large variety of treatments, including approved inpatient hospitalisation, day surgeries, rehabilitative care, palliative care, outpatient treatments, vaccinations, health screenings and radiotherapy. We can use our Medisave/MediShield Life Calculator to estimate how much we can claim for the approved treatments.
In the event our dependents (spouse, children, parents, grandparents, and siblings) do not have enough in their Medisave to service a healthcare bill, it is possible for them to use our Medisave savings for payment.
Pros: #3 Medisave Top-Ups are Tax Deductible
Top-ups made specifically to our MediSave account is tax-deductible under the CPF Voluntary Contribution scheme.
Unlike Retirement Sum Topping-Up Scheme (RSTU) where there is a fixed cap on tax relief, the tax relief for MediSave top-up is not capped. The tax relief limit will vary accounting to our employment type. For salaried employees, we can expect our MediSave tax relief limit to be the annual CPF contribution cap of $37,740, less our mandatory CPF contribution. For example, if our mandatory CPF contribution for the year is $30,000, our allowable MediSave tax relief would be $7,740.
The MediSave top-up tax relief we enjoy would also be subjected to our Personal Income Tax Relief Cap of $80,000 per annum. Therefore, if we want to enjoy maximum tax relief benefits, our combined tax reliefs including MediSave top-up should not exceed $80,000 per annum.
Cons: #1 MediSave Only Can Be Used For Medical Expenses And Health Insurance, Cannot Be Used For Retirement
While it is true that we can use MediSave anytime for our essential healthcare needs, we will not be able to withdraw it for retirement usage. This means that if we have the full $63,000 for Basic Healthcare Sum (BHS), we would not be able to withdraw those savings for retirement nor count it as part of our Full Retirement Sum or Basic Retirement Sum.
Currently, we do not need to set aside a minimum amount in our MediSave. Therefore, depending on our needs and preference, we can still choose to minimise or maximise our MediSave savings.
Cons: #2 Topping-Up May Affect Your Cashflow
As with all CPF top-ups, this action is irreversible.
The CPF Voluntary Contribution requires us to use cash to top up our accounts. This means that we will have less funds for other purposes if we choose to top up our MediSave. Unlike keeping the monies in cash (as an emergency) or topping up our OA (as a retirement fund), the use of MediSave is restricted to healthcare expenses for the rest of our life. Hence, we should carefully assess our cash flow needs before considering a MediSave top-up.
Alternatively, we can break up our top-ups into more palatable monthly amount contribution to still enjoy the potential tax benefits in the future.
Saving For Your Future Healthcare Needs
Regardless, setting aside healthcare cost is also part of retirement planning as our healthcare expenses tend to increase with age. We can look towards MediSave as a layer of protection for our healthcare bills. Furthermore, MediSave can be used to finance our healthcare insurance which serves to provide more healthcare coverage. In the event we have topped up till our full BHS, any other additional amount including interest rates would flow to our Special Account and Retirement Account.
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