Tutoring is becoming a popular career for many people who wish to become their own bosses and do work on their own time. They could also set how much their tuition fees costs and how they can be paid.
When it comes to contributions like the Central Provident Fund or CPF, tutors are divided. Some do not pay their contributions because they are not employed by a certain employer. Others pay their contributions voluntarily even if their salaries are not constant.
If you are a new tutor, what should you know about CPF contributions? Here is a quick guide to help you out:
Must You Top Up Your CPF Accounts?
Normally, CPF contributions are paid for the worker by their employers depending on their salaries. As a tutor or a self-employed worker, you do not have an employer to pay the contributions for you. With this in mind, you will need to pay it yourself.
Each Singaporean has 3 CPF accounts and they are Ordinary, Special and Medisave. The Ordinary account is for housing, investment, education and insurance. The Special account is related to retirement; while Medisave is for medical expenditures.
Contributions for both Ordinary and Special accounts are optional. If you are earning $6,000 or more per year, it is compulsory to pay your Medisave contributions and this means any side income including rental or ad-hoc paid projects that you might have.
Freelancers who get less than $6,000 per year can opt out from contributing to their Medisave account. If they make more, it is required for them to contribute money.
Contributions to your Medisave Account?
The government computes a person’s Medisave contribution amount based on the person’s age and how much they earn in a year. The entire formula used is posted on CPF’s website.
Individuals interested to find out more about the Medisave contributions can also use the contribution calculator in the site.
Deadline for Medisave Contributions
For those who have received their Notice of Assessment from the Inland Revenue Authority of Singapore, they need to settle their Medisave contributions within 30 days.
For those who did not get their Notice of Assessment, they need to pay their contributions before May 31 of every year.
How to pay your Medisave contributions?
If you want to pay for your Medisave contributions, you can go to the “my cpf” E-Service and pay online.
Your SingPass details will be requested to verify the payment. Make sure to select “Self-Employed” option on the “Paying as a…” field before you make a payment.
If you do not want to pay through the website, you can also pay at any SingPost branch in the country or use GIRO or NETS.
Do I have to Pay everything in one go?
If you cannot pay the full amount of your Medisave contributions, you can pay it through instalments.
You can use the online instalment calculator available on the CPF website to see how much you will need to pay.
You can also check the amount through the “my cpf E-Service” and select “Contribute to my Medisave in instalments” option on the “My Request” tab.
Contributions to Your Ordinary and Special Accounts (Pros and Cons)
Tutors can opt out from contribution to either their Ordinary or Special accounts since it is not compulsory. But, if you are thinking about contributing like what I did, here are some of the pros and cons to help you decide.
Remember, this is optional.
1. It can help you save up funds for retirement
Apart from the three CPF accounts, each Singaporean receives a Retirement Account when we turned 55.
When we do get this account, we can transfer money out of their CPF accounts to the retirement account. The money will then be considered the “Retirement Sum” and will be given back to us through cash payouts every month.
You can also withdraw the money out of your CPF accounts once you retire to add to your retirement funds.
Every person will have to retire at some point and it is important that during your retirement years, you have enough money to spend every day. By making regular contributions to your CPF accounts, you can relax since you have extra money saved up for your retirement.
If you want to find out how much Retirement Sum you can make, you can check out the CPF’s website for more details.
2. CPF has better interest rates than banks
As you contribute to your CPF accounts, the money is not idle as you think. Ordinary accounts have a yearly interest rate of 3.5%, while it is 5% for special accounts.
So, if you have contributed at least $60,000 on both accounts, it will increase by the time you retire.
By comparison, banks only have a small interest rate and it may pale into comparison once you compare it with your CPF contributions.
3. CPF Contributions Can Reduce Your Income Tax Liability
The government has a special CPF relief scheme for self-employed workers like us to help them with their income tax liabilities.
To be eligible for this scheme, you must have contributed regularly to your Medisave account and made voluntary contributions. If you have done voluntary CPF contributions, you can choose to pay your income tax with the amount you contribute.
1. You cannot withdraw the contributions
If you find yourself in need of funds, you cannot withdraw out of your CPF accounts until you turn 55. The money you placed on your CPF accounts will be used to pay certain expenses.
For example, if you want to pay for your insurance, your Ordinary CPF account can be used.
With this said, you will need to save money on a separate bank account or hold off on your contributions to pay for other bills.
2. There are better interest rates in other institutions
If you will only focus your funds on your CPF accounts, you may not be able to invest your money to its maximum potential.
It is possible that you can double or triple your money through other investments like stocks or real estate. You will need to be savvy to double your investments, so if you are not very hands-on with investments, CPF is good for you.
As a tutor, you need to ensure that you are secured for the future. By making regular CPF contributions and putting aside a tidy nest egg, you will be able to support yourself once you retire and enjoy the fruits of your labour.
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