What is the 5% penalty for early SRS withdrawal, and when does it not apply?

SRS Early Withdrawal Penalty and Exceptions

The Supplementary Retirement Scheme (SRS) is designed for retirement savings, and withdrawing funds before the statutory retirement age (currently 63 for those opening the account now) incurs a penalty.

The 5% Penalty

If a Singapore Citizen or Permanent Resident withdraws funds from their SRS account before reaching the statutory retirement age, a 5% penalty is applied to the withdrawn amount. This penalty is in addition to income tax.

Tax Implications of Early Withdrawal

• Tax on Withdrawal: 100% of the amount withdrawn before the retirement age is subject to income tax at your prevailing marginal tax rate.
• Penalty: An additional 5% penalty is levied on the withdrawn amount.

When the 5% Penalty Does Not Apply

The 5% penalty is waived under specific circumstances, although the 100% income tax liability generally remains (unless specific tax-free withdrawal conditions are met after retirement age):

• Withdrawal After Retirement Age: Once you reach the statutory retirement age (currently 63), withdrawals are no longer subject to the 5% penalty. Only 50% of the withdrawn amount is subject to income tax (IRAS).
• Same-Year Withdrawal Exception: The 5% penalty is waived if the withdrawal amount is withdrawn in the same calendar year as the contribution was made (i.e., before 31 December of the contribution year). However, the full withdrawn amount is still subject to income tax in that year.

Example: If you contribute SGD 15,300 in 2024 but realize you need the funds, withdrawing the SGD 15,300 before 31 December 2024 avoids the 5% penalty, but the SGD 15,300 is taxed as regular income for YA 2025.

Note on Foreigners: Foreigners who open an SRS account can withdraw a lump sum after 10 years without incurring the 5% penalty, though tax implications still apply based on their residency status at the time of withdrawal.